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01/11/2024
Economic Publications

Focus Southern Europe December 23

Focus Southern Europe December 23
To grow out of its debt, Southern Europe must look beyond tourism and solve its demographic crisis

While the good tourism season benefits Southern European economies, their tourism-led growth raises questions on their structural vulnerabilities that could shape their long-term sustainability. From a broken engine a decade ago, Southern Europe has become the workhorse of the post pandemic European recovery. In 2021-23, Italy, Spain, Greece and Portugal have consistently accounted for between a fourth and half of EU GDP growth. Mediterranean countries benefit from a steady recovery in the tourism sector, enabling them to pick up the slack in driving EU growth at a time when Europe’s traditional economic core is struggling (Germany, in particular) to get back on its feet due to manufacturing gloom. While tourism had plummeted during the pandemic, tourist numbers are now mostly back to pre-pandemic levels. The figures for the first half of 2023 confirm a record summer, from which Southern Europe benefited even more. This upturn is also driven by the return of international travelers, which remains slightly below pre-pandemic levels at EU level, but above for Southern Europe. Tourism recovery is expected to play a central role in the growth resilience of Southern Europe whose economies are particularly dependent on it. The sector accounts for over 10% of the GDP of countries in this region and is a significant engine of their economy through numerous channels. It can be a palliative to stimulate Southern European countries’ growth.

However, this favorable momentum could come to an end because of an uncertain demand outlook but also of structural pitfalls. The scope for tourism growth is likely to be increasingly limited while countries’ comparative advantage may be affected by changes in travel habits due to today’s inflationary world and growing concerns about climatic conditions.

Such reliance on tourism leads to a noticeable distortion in terms of productivity compared with the rest of Europe due to more low value-added activities in their economy. In the meantime, tourism-related activities are characterized by a weaker workforce with lower education and more precarious employment. The question of productivity is of utmost importance for Italy, where population decline means labour shortages are here to stay. By 2040, Italy’s working-age population is set to contract by 11.7%, vs. 2.4% in France; 4.1% in Spain and 4.9% in Germany. Population decline hinders the benefits of EU-funded investment plans: capital cannot be used productively without the workers to operate it.

Download this publication : Focus Southern Europe December 23 (2.00 MB)

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Antonella VONA

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