This report does not constitute a rating action.
Strong tourism and rising non-tourism exports will underpin continued growth outperformance in Mediterranean eurozone countries vis-à-vis their northern counterparts. Manufacturing is thriving in Greece, Italy, and Portugal, while high-value non-tourism services are boosting growth in Cyprus, Croatia, Malta, Slovenia, and Spain. This trend is leading to a more sustainable and diversified export-driven economy.
Chart 1
Chart 2
What's Happening
The bright spots among a broadly stagnant eurozone have largely been its southern members, particularly most of the nine so-called Euro Med sovereigns (e.g., Croatia, Cyprus, Greece, Malta, Portugal, Slovenia, and Spain--plus France and Italy). We see two key reasons behind this trend:
- First, their relatively stronger private sector balance sheets--both compared to northern peers, but also when compared with pre-financial crisis levels (see “European Housing Markets: Better Housing Affordability Supports Recovery” published Jan. 27, 2025); and
- Second, improved export performance in both quantity and quality, where we're seeing not just booming tourism, but also increasing export diversification.
Why It Matters
The pandemic exposed the risks of overreliance on tourism. The pandemic led to a sudden stop in tourist arrivals, disproportionately affecting southern eurozone members. On average, the nine Euro Med sovereigns relied on travel and tourism for 26% of export earnings in 2019, compared with 11% for other eurozone members. Encouragingly, tourist numbers appear likely to have exceeded pre-pandemic levels last year in all EuroClub Med sovereigns.
Salvation through diversification. The simultaneous rise in non-tourism export growth bodes well for the health and quality of the recovery in the nine Euro Med sovereigns. Significant NextGenEU funding has clearly also been playing a role in the domestic recovery. However, we think the success of the non-tourism export sector stems from improved competitiveness and a shift to external demand following the collapse in internal demand during the sovereign debt crisis and the effects of previous structural reforms to enhance the business environment. Such reforms have been most intense in ex-EU/IMF program countries such as Greece, Portugal, and Cyprus.
What Comes Next
In the Med, the eurozone crisis will continue to cast a long shadow. Sovereign ratings in the eurozone have still not recovered to where they were at the start of 2010, reflecting among other factors the still impaired, albeit recovering, public balance sheets. Sovereign ratings have nonetheless been improving since at least 2015. On Oct. 20, 2023, Greece became the final eurozone member to return to investment grade, while we currently have a positive outlook on the ratings of five out of the 20 eurozone sovereigns, four of which are in Euro Med.
Background In Brief: Euro Med Sovereign Ratings Are Still Recovering
Despite successive upgrades for most of the Euro Med sovereigns in recent years, a gap between the current ratings and previous peaks persists. In 2024, S&P Global Ratings improved the ratings on Croatia, Cyprus (twice), and Portugal, while France was the only member to experience a downgrade. Indeed, the average Euro Med sovereign rating is about 1.5 notches below the 2010 level, despite being four notches above the all-time lowest point for the group, which was in June 2013 when Cyprus defaulted.
Four of the nine Euro Med sovereigns currently have positive outlooks. Our ratings on Croatia, Greece, Portugal, and Slovenia all have positive outlooks, signaling a heightened probability of further upgrades over the next 12-24 months. This contrasts with our outlooks for the rest of the eurozone, where only Ireland (itself also a fellow post-EU/IMF program country) has a positive outlook.
Chart 3
Related Research
- European Housing Markets: Better Housing Affordability Supports Recovery, Jan. 27, 2025
- Economic Outlook Eurozone Q3 2024: Growth Returns, Rates Fall, June 24, 2024
- Croatia Upgraded To 'A-' On Reform Progress; Outlook Positive, Sept. 13, 2024
- Cyprus Upgraded To 'A-' On Economic And Fiscal Outperformance; Outlook Stable, Dec. 13, 2024
- France 'AA-/A-1+' Ratings Affirmed; Outlook Stable, Nov. 29, 2024
- Greece, Oct. 21, 2024
- Italy 'BBB/A-2' Ratings Affirmed; Outlook Stable, Oct. 18, 2024
- Malta 'A-/A-2' Ratings Affirmed; Outlook Stable, Dec 6, 2024
- Portugal, Sept. 2, 2024
- Slovenia Outlook Revised To Positive From Stable On Favorable Economic Outlook; 'AA-/A-1+' Ratings Affirmed, Dec. 6, 2024
- Spain, Sept. 16, 2024
| Primary Credit Analysts: | Samuel F Tilleray, Madrid + 442071768255; samuel.tilleray@spglobal.com |
| Adrienne Benassy, Paris +33 144206689; adrienne.benassy@spglobal.com | |
| Secondary Contact: | Marko Mrsnik, Madrid +34-91-389-6953; marko.mrsnik@spglobal.com |
| Research Assistant: | Louise Morteveille, Paris |
| Additional Contact: | Sovereign and IPF EMEA; SOVIPF@spglobal.com |
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