Commentary: Long the laggards, Italy and France drive "la Euroboom"

Germany and Spain have been the drivers of euro zone growth over the last couple of years, but it’s France and Italy steering the “Euroboom” into 2018.

Fred Ducrozet at Pictet Asset Management notes that the latest leg of this “robust and broad-based” recovery has been increasingly driven by laggard countries “catching up with the rest of the pack.”

He’s crunched the numbers and unsurprisingly finds that Italy is punching well below its weight. 

Based on end-2016 figures, Italy accounts for 15.5 percent of total euro zone economic output. But it has accounted for only 4.2 percent of cumulative growth since the euro’s inception in 1999, almost four times lower than its weighting. 

Yet since Q2 2013, Italy’s cumulative contribution to overall euro zone growth stands at 7.5 percent, according to Ducrozet. If you start at Q1 last year, that rises to 9.6 percent. 

Based on end-2016 figures, France’s share of the euro zone economy is 20.6 percent. Since 1999 France’s contribution to euro zone growth has been almost exactly the same as its weighting, at 21.1 percent. 

That falls sharply to 13.0 percent when using Q2 2013 as the starting point, reflecting just how hard France’s economy was hit by the 2008 global financial and 2011-12 euro zone debt crises. But since Q1 last year, that has risen to 14.2 percent.

Ducrozet’s analysis shows that both countries are moving in the right direction, albeit slowly. Even though they’re both coming up from a low base, they’re narrowing the gap between actual and potential growth. 

Erik Nielsen at Unicredit notes that, contrary to perceived wisdom, Italy’s low trend growth rate of 1-1.5 percent is sufficient to keep the country comfortably servicing its large debt load of around 130 percent of GDP.