State of Play: Insights from Beaumont Group

Southern Europe Economies Outperforming Northern Economies: P.I.G.S are Flying…Why and for How Long?

By Stefano Fermani, Managing Director Italy & Group CFO

In recent years, a notable transformation has been taking place in the economic landscape of Europe. Contrary to historical trends, Southern European economies are beginning to outpace their Northern counterparts, marking a significant shift in the continent’s economic dynamics. This phenomenon has sparked debates among economists, policymakers, and commercial leadership prompting a closer examination of the underlying factors driving this unexpected reversal.

The shift has been intentional and well considered. As a result of this rise, we at Beaumont Group think it worth a more detailed exploration of the reasons for the shift as well as the impact this will have in general, and specifically with leadership and recruitment across the countries in the region — Italy, Spain, Portugal and Greece – referred to as the PIGS in years past, an acronym that should change in years to come perhaps!

This article will be the first in a series we will dedicate to this shift, focusing first on the general trends and impact overall, then subsequently we will focus on each country’s unique evolution story.


General Thoughts

Traditionally, Northern European countries such as Germany, France, the Nordics, and the Netherlands have been heralded for their robust economies, characterized by strong industrial bases, export-oriented models, and sound fiscal policies. Meanwhile, Southern European nations, including Spain, Italy, Greece, and Portugal, have often grappled with structural challenges such as high unemployment, sluggish growth, and sovereign debt crises.

The tide appears to be turning. Several key indicators point to a remarkable resurgence in Southern Europe’s economic performance. One of the primary drivers of this shift is the region’s concerted efforts to implement structural reforms aimed at enhancing competitiveness, fostering innovation, and improving labor market dynamics. Countries like Spain and Portugal have undertaken bold reforms to liberalize their economies, streamline bureaucracy, and attract foreign investment. These initiatives have borne fruit, revitalizing sectors such as tourism, manufacturing, and technology.

Moreover, the European Union’s recovery and resilience funds, established in response to the COVID-19 pandemic, have provided a significant stimulus to Southern European economies. These funds, coupled with targeted investments in infrastructure, renewable energy, and digitalization, have catalyzed growth and accelerated the transition to more sustainable and inclusive economic models. These four economies have received a significant share of the total investment:

  • Italy = €191.5 bn
  • Spain = €69.5 bn
  • Portugal = €16.6 bn
  • Greece = €31 bn

(Source: Bruegel based on submitted national recovery plans.)

Furthermore, demographic and economic trends are playing a pivotal role in reshaping Europe’s economic landscape. Both Northern and Southern European countries are grappling with aging populations, declining birth rates, and economic challenges, similar to other first world economies. Southern European countries have faced challenges in economic recovery post the 2008 financial crisis and subsequent Eurozone crisis, leading to high public debt levels and slower growth rates than their Northern European neighbors. Thus, the investments by the EU are aimed at modernising aspects of the Southern European economies via investments in infrastructure, education, the digital economy, and green initiatives. This is beginning to pay dividends in innovation, entrepreneurship, and economic dynamism, driving productivity gains and fueling domestic demand.

Additionally, changing global dynamics, including shifts in trade patterns and geopolitical realignments, are creating new opportunities for Southern European economies to expand their presence in emerging markets and diversify their export destinations. Countries like Italy and Spain are leveraging their cultural heritage, creative industries and expertise in sectors such as fashion, design, and renewable energy to gain a competitive edge in the global marketplace.

Despite these encouraging trends, challenges remain. Persistent structural imbalances, fiscal vulnerabilities, and geopolitical uncertainties pose risks to the sustainability of Southern Europe’s economic recovery. Addressing these challenges will require continued reforms, investment in education and skills development, and closer regional cooperation to harness synergies and mitigate risks.


The European Commission’s Investment

The economies of Southern Europe have benefited from The European Commission’s funding and support programs aimed at promoting growth, competitiveness, and convergence. Initiatives such as the European Structural and Investment Funds (ESIF) and the European Recovery and Resilience Facility (RRF) provide financial assistance for infrastructure projects, innovation, and reforms.

The goals of the investments broadly have been to promote economic convergence among its member states, reducing disparities in income levels, infrastructure, and development. Many Southern European countries have faced challenges in catching up with their wealthier counterparts in Northern Europe. Investing in Southern economies helps bridge this gap and fosters greater cohesion within the EU.

Additionally, Southern European countries have historically grappled with structural weaknesses such as high unemployment, low productivity, and fiscal imbalances. EU investments are directed towards addressing these challenges by supporting structural reforms, enhancing competitiveness, and promoting sustainable growth. Initiatives funded by the EU, such as infrastructure projects, research and innovation programs, and social development schemes, aim to strengthen the foundations of Southern economies and improve their long-term prospects with the main objective to mitigate the weaknesses seen in these countries’ economic ecosystems.

Some general trends and successes have been observed in Southern European economies in recent years, especially since the pandemic:

Labor Market Reforms
Southern European countries, including Spain and Portugal, have implemented labour market reforms aimed at increasing flexibility, reducing unemployment, and boosting competitiveness. These reforms have led to improvements in job creation and a reduction in unemployment rates, particularly among the younger population.

Foreign Direct Investment (FDI)
These countries have attracted significant foreign direct investment, particularly in sectors such as tourism, manufacturing, renewable energy, and technology. The investment by The RRF investment especially by the European Commission has been a catalyst for FDI from other global economies as well. For instance, Spain has been a magnet for foreign investment in renewable energy projects, while Italy’s fashion and design industries continue to draw international investors.

Export Successes
Despite challenges, Southern European countries have demonstrated resilience in their export sectors. Italy, known for its luxury goods, automotive industry, and machinery exports, has maintained its position as one of the world’s top exporters. Similarly, Spain has seen growth in its export-oriented industries, including agriculture, food products, and automotive components.

This whole region is renowned for their tourist attractions, and tourism plays a significant role in their economies. These Southern economies have seen significant growth in tourism, attracting millions of visitors each year and critical hard currencies necessary to improve infrastructure. Efforts to diversify tourism offerings and promote sustainable tourism have contributed to the sector’s success.

Technology and Innovation
These countries have also made huge strides in technology and innovation, with emerging startup ecosystems in cities like Barcelona, Lisbon, and Milan. These ecosystems have attracted venture capital funding and fostered entrepreneurship, leading to the development of innovative products and services across various sectors.


What Does This Mean for Leadership and Recruitment

Increased Job Opportunities
As economies grow, there tends to be a higher demand for skilled workers across various sectors. This can lead to increased job opportunities for both local talent and professionals from other regions.

Demand for Leadership Skills
Growing economies often require strong leadership to navigate expansion, manage resources effectively, and capitalize on new opportunities. This creates a demand for leaders with strategic vision, management skills, and the ability to adapt to changing market dynamics.

Competitive Recruitment
With increased economic activity, companies may compete more aggressively for top talent. This can lead to improved compensation packages, better benefits, and enhanced career development opportunities to attract and retain skilled individuals.

Focus on Innovation and Adaptability
Economic growth often encourages innovation and the adoption of new technologies. Leaders and recruits may need to possess skills related to digital transformation, innovation management, and the ability to adapt to evolving market trends.

Cultural and Language Skills
Southern European countries have unique cultural and language nuances that can influence recruitment and leadership dynamics. Proficiency in local languages and an understanding of cultural norms can be advantageous for effective leadership and team collaboration.

Additionally, much of the current recruitment environment in specific economies is focused on attracting skilled labour and middle management. In Italy for example, we see a very active recruitment market at the lower and mid-levels of organisations.

We know that the next phase of this growth trajectory will be a critical need to find leaders and executive talent that is highly experienced in navigating these trends.


In Conclusion

Despite growth, southern European economies may face specific challenges such as structural inefficiencies or regulatory hurdles. Additionally, Southern European economies must enhance their attractiveness to Foreign Direct Investment and Private Equity to supplement the investments by the EU recovery and resilience funds. This will require accelerating the evolution of the emerging growth and small businesses to become attractive to venture and private equity investors, enabling these companies to grow and deliver desired returns. Leadership and mid-level managers who can navigate these challenges while capitalising on growth opportunities will be in high demand across the region.


Contact Stefano at:

+39 335 697 0554