Victor Rivera

Fri, Mar 8

Mind the Politics - Growth in Europe


In our last episode, we mentioned that not all European countries are expected to have difficult times finding growth, with 68% expected to grow in 2019. This is higher than 2018, and is inclusive of Spain. In all, it is forecast that 46% are expected to show growth higher than 3% in 2019.

Today we do a deep dive into the countries expecting to show outstanding growth.

Economic Performance 

In total, 20 countries are expected to show higher real GDP growth in 2019 than the European Union level at 2%, out of which 19 countries are expected to show higher real GDP growth in 2019 than they did in 2018.

Graph 1 – Map of Countries segmented by estimated growth

More importantly, within the 19 countries, the first group is formed by Croatia, Greece, Lithuania, Netherlands and Spain, who are expected to grow between 2.2% and 2.9%, and the expectation is they will continue to outperform their previous years growth until 2023.


Tables 1 – First squad of countries segmented by estimated growth (2019-2023) Data Source: IMF
(Red = Real GDP growth < previous year) (Yellow = Real GDP growth YoY > previous year by as much as 1%)

The second group are countries that are expected to grow above 3% in 2019, but this real GDP growth rate decreases below 3% for the following 4 years (2020-2023)., Countries in this bracket include Czech Republic, Hungary and Slovenia.


Tables 2 – Second squad of countries segmented by estimated growth (2019-2023) Data Source: IMF
(Yellow = Real GDP growth YoY > previous year by as much as 1%) (Green = Real GDP growth YoY > 1% previous year)

Finally, the leading and fastest growing group of countries is formed by 10 countries (Bulgaria, Cyprus, Estonia, Ireland, Latvia, Luxembourg, Malta, Poland, Slovak Republic and Romania). This is the leading group, as not only they are expected to perform real GDP growth in 2019 above 3%, (of which 4 countries will show figures above 4%) but they are also forecasted to  continue growing above 3% throughout the following 4 years.

Tables 3 – Third squad of countries segmented by estimated growth (2019-2023) Data Source: IMF
(Yellow = Real GDP growth YoY > previous year by as much as 1%) (Green = Real GDP growth YoY > 1% previous year)

If we focus on the second and third groups, we find countries of all the sizes with population ranging from 0.4 to 37 million and GDP per capita ranging from $8,031 and $104,103, also we find 13 different languages covered, as well as different legislature systems – from a presidential republic to a parliamentarism or even a constitutional monarchy.

Even though the first impression is that investors could not really segment this fast growing group, the reality is that 9 out of 13 are within the European Union and use the Euro as their currency Furthermore, 9 out of the 13 are member countries of the OECD. This allows us to ascertain that the majority follow high standards of legal frameworks, as well as strong commitments to the implementation of transparent policies to improve the lives of their citizens.

In order to finalize our segmentation approach, based on the size of the economy and the income capacity of their citizens, it could be argued that Ireland, Luxembourg, Poland, Slovakia, Czech Republic, Hungary and Romania, should be the top 8 countries for investors to focus on. However, it would be prudent to touch base on some of the political differences before we draw conclusions.


Political History of the Squads

Luxembourg and Ireland, not being united by any particular historical or cultural links, represent those EU members, taking a very positive stance towards investments and corporations, and excelling in very high standards of quality of life and multilingual workforce – really attracting globally minded individuals from, and outside, the EU.

Although the two countries are small compared to the major EU countries, they have always held leading political roles in the EU, such as the current president of the European Commission, Jean-Claude Juncker.

A big segment to look for is a so-called the Visegrad Group. Consisting of 4 states – Poland, Hungria, Czech Republic and Slovakia, this group shares common history and similar values. All being members of the Austria-Hungarian Empire.

Created in 1991, Visegrad Group has worked hard to promote integration on zeconomic and cultural levels, as well as to expand their foreign links fostering exports. Their close relationship improved drastically after May 2004, when they all were admitted as equal members of the EU, and since then, fiscal policy with the support of the European Union funding infrastructure developments and mayor social projects has driven their economies to increased growth and reduced unemployment levels. More importantly, all of them show low levels of fiscal deficit as well as debt to GDP ratios.

On top of that, the group holds influential positions in the EU, with Mr. Dunald Tusk being the current President of the European Council, and Mr. Jerzy Buzek, being former President of the European Parliament, this group, has real historical and cultural links to unite them.

Romania seems a bit out of the picture, but this semi-presidential representative republic, with executive power exercised by the president of the republic and the government, has a recent history of implementing pro-economic growth policies aligned with western capitalism structures, the country has a multi-party system with 6 top parties in Parliament and 7 in Non-Parliamentary and will held presidential elections this year, with widely diverse political and social approaches from left to right.

One example of its success and transformation is its current president is Mr. Klaus Iohannis, a descendant from German minority that was a physics and school inspector before entering full time into politics. In 2000 he became the mayor of Sibiu transforming it into the Romanian city most visited by tourists and declared the European Capital of Culture in 2007.

Since December 2014 Mr. Klaus, as president, has fought corruption, implemented fiscal stimuli, and wage increases, generating employment and driving unemployment levels to below 5%, keeping inflation in low levels between 1-3%, Debt/GDP below 50% and higher current account/GDP ratios than presented during the first 2000’s decade.



Therefore, not all European countries are necessarily facing difficult times, of facing political uncertainty, with a majority of them facing a bright future. Considering that combination of the two fast growing groups amass a total GDP of $1.656 billion, the collective locates them at the same level of the top 15 biggest countries in the world.

With a deeper look among those countries one could come up with two groups for investors to focus on, were political stability have been achieved and substantial importance in leading roles of the EU have been conquered:

*  Squad A – Formed of Ireland and Luxembourg, countries with similar business characteristics, tax incentives and strong financial services industries established

*  Squad B – Formed of 5 states, the Visegrad Group + Romania