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A significant shift in the Eurozone’s economic landscape is emerging as the European Central Bank (ECB) grapples with an unprecedented reversal of fortunes among its member states. Countries previously devastated by the 2010s debt crisis are now displaying remarkable resilience, whilst traditional economic powerhouses falter.
Portugal, Ireland, Greece, and Spain are projected to achieve growth rates exceeding 2% in 2025, more than doubling the forecasts for economic giants France and Germany, according to OECD predictions. This dramatic role reversal presents a striking contrast to the economic narrative of the previous decade.
The German economy, once the cornerstone of European fiscal strength, has found itself teetering on the brink of recession throughout late 2024. Political upheaval, combined with declining industrial output and diminishing Chinese export demand, has created a perfect storm for Europe’s largest economy. The loss of affordable Russian gas supplies has further compounded these challenges, particularly affecting Germany’s substantial industrial sector.
France faces its own set of challenges, with President Emmanuel Macron struggling to implement crucial budget reforms. The appointment of François Bayrou as the fourth prime minister this year underscores the political volatility affecting the nation. OECD projections indicate French GDP growth will decline from 1.1% in 2024 to 0.9% in 2025, as austerity measures impact both commercial and household sectors.
ECB President Christine Lagarde has indicated further interest rate reductions in 2025, acknowledging that the “darkest days” of inflation appear to be passing. The central bank has already reduced borrowing costs to 3% in 2024, responding to mounting pressure to support struggling northern European economies.
The remarkable resilience of southern European economies suggests that the painful reforms implemented during the 2010s crisis have yielded positive results. However, economists caution that while these nations are showing promising growth, there remains considerable ground to cover, particularly for countries like Greece.
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