Dispersion in real GDP growth across euro area countries: developments and drivers

Dispersion in real GDP growth across euro area countries: developments and drivers

Prepared by Niccolo Battistini, Johannes Gareis and Richard Morris

Published as part of the ECB Economic Bulletin, Issue 3/2026.

Dispersion in euro area real GDP growth has declined recently and is relatively low by historical standards. Cross-country dispersion in euro area real GDP growth – measured as the GDP-weighted sum of absolute deviations of each country’s quarterly year-on-year growth from that of the euro area aggregate (excluding Ireland) – is now at a relatively low level.^[1] Such a level has typically been associated with “calm” periods, including the period preceding the global financial crisis (1999-2007) and the period following the euro area sovereign debt crisis but preceding the COVID-19 pandemic (2015-19) (Chart A). However, dispersion in real GDP growth has only recently fallen from the elevated levels observed during the pandemic and in the wake of the Russian invasion of Ukraine.

Chart A

Dispersion in year-on-year real GDP growth

(sum of GDP-weighted absolute deviations, percentage points)

In recent years dispersion in euro area real GDP growth has been accompanied by convergence in real GDP per capita. Measured as the sum of population-weighted absolute deviations of the real GDP per capita of each country (in percentage terms) from that of the euro area aggregate (excluding Ireland), dispersion in real GDP per capita increased between 1999 and 2014 (Chart B). Until 2007 this mostly reflected the enlargement of the euro area and later the fallout from the macroeconomic imbalances that had accumulated before the global financial crisis. Since 2015 dispersion in real GDP per capita has generally been on a downward trend, although this was interrupted by the pandemic in 2020. The gradual decline in growth dispersion observed since the pandemic has been consistent with the resumption of this convergence path.

Chart B

Dispersion in real GDP per capita

(sum of population-weighted absolute deviations, percentages)

In times of crisis, surges in growth dispersion have typically emerged in specific sectors. Sectoral cross-country dispersion is calculated as the gross value added (GVA)-weighted sum of absolute deviations of growth across euro area countries in six broad NACE sectors relative to the aggregate euro area growth in each sector (Chart C).^[2] Each series is further weighted by the share of each sector in euro area GDP to approximate its contribution to overall GDP growth dispersion. During the global financial crisis, increased growth dispersion was concentrated in the manufacturing sector in particular, with much sharper contractions and subsequent recoveries in Germany and Italy than in France and Spain. During the pandemic, the rise in dispersion was broad-based but concentrated in a more contact-intensive sector, consumer services. This reflected differences in the timing and severity of pandemic waves across countries, as well as the decline in tourism, particularly affecting Mediterranean countries. Later, in the course of 2022, dispersion also notably increased in business services, with growth shifting away from Germany towards Spain and Italy. This may have reflected opportunities arising from the increased use and acceptance of remote working which, together with demographic developments and tax incentives for building renovations in Italy, may also have accounted for greater dispersion in construction activity during that period. In the aftermath of the Russian invasion of Ukraine, dispersion rose temporarily in the energy sector, as nuclear power generation ramped up in France following a period of maintenance, and in the manufacturing sector, with France and Spain benefiting at the expense of Germany.

Chart C

Dispersion in year-on-year real GVA growth in broad NACE sectors

(sum of GVA-weighted absolute deviations, percentage points)

Recently growth dispersion has been less concentrated and more broad-based. As an approximate measure of the sectoral drivers of growth dispersion, real GDP growth is regressed on real GVA growth across euro area countries in 2025 separately for each sector, with each country observation weighted by its share in total euro area GDP. The positive and significant elasticities indicate that recent growth differentials have been significantly associated with developments in both manufacturing and services (Chart D). For the consumer, business and public services sectors, the estimated elasticities are broadly proportionate to their share of GVA. At the same time, the elasticity for the manufacturing sector is higher, pointing to this sector’s importance going beyond its GVA share.

Chart D

Elasticity of 2025 real GDP growth with respect to sectoral trends

(left-hand scale: elasticities; right-hand scale: GVA shares, percentages)

Recent dispersion in GDP growth among euro area countries is more closely related to demographic and labour market trends than to differences in productivity growth. To assess the drivers of this dispersion, GDP growth can be measured against (i) population growth, (ii) the change in the working-age^[3] share of the population, (iii) the change in the labour force participation rate, (iv) the change in the unemployment rate, and (v) productivity growth. Accordingly, in a similar vein to the analysis above, GDP growth in 2025 is regressed across countries separately on each of these variables, with each country observation weighted by its share in total euro area GDP. The estimated elasticities indicate that varying trends in population, age structure and labour force participation are associated with cross-country growth dispersion (Chart E). By contrast, the elasticities for productivity growth and changes in the unemployment rate are smaller and less statistically significant.^[4]

Chart E

Elasticity of 2025 real GDP growth with respect to demographic and labour market trends

(elasticities)

Germany and Spain illustrate the prominent role that demographic and labour market trends currently play in growth dispersion. In 2025 around 60% of the dispersion in euro area real GDP growth was explained by Germany and Spain. Chart F breaks down the real GDP growth of these countries into contributions from the demographic and labour market trends mentioned above. In Germany, population growth has been levelling off, while the working-age share of the population has been declining, reflecting population ageing and moderating inward migration. Germany’s labour force participation rate has been rising, but this has been partly offset by an increase in the unemployment rate. In Spain, by contrast, recent strong GDP growth has coincided with notable increases in its population and the working-age share of its population – both consequences of strong inward migration – as well as a rising labour force participation rate and continued reduction in its previously very high unemployment rate. In both countries, labour productivity has contributed relatively little to real GDP growth in recent years. However, rising unemployment in Germany and falling unemployment in Spain have driven convergence in real GDP per capita.

Chart F

Breakdown of real GDP growth in Germany and Spain

(year-on-year changes and percentage point contributions)

Looking ahead, the war in the Middle East may lead to a resurgence in cross-country growth dispersion similar to that observed following the Russian invasion of Ukraine. Disruptions to shipments through the Strait of Hormuz and attacks on oil and gas infrastructure are pushing up oil and gas prices significantly and risk reactivating some of the asymmetric sectoral dynamics highlighted above. The energy shock is likely to widen cross-country growth differentials in manufacturing and energy-intensive industries, where exposure varies considerably across euro area countries.

1. The analysis in this box is based on euro area data excluding Ireland to avoid distortions caused by the extreme volatility of Irish GDP owing to the recording of the activities of multinational enterprises.

2. NACE refers to the “Statistical classification of economic activities in the European Community”. For the purpose of this analysis, “consumer services” refers to NACE sections G to I and R to U, “business services” to NACE sections J to N and “public services” to NACE sections O to Q.

3. For the purpose of the analysis in this box, “working age” refers to people aged 15-74.

4. The regressions are univariate and do not account for potential correlations across explanatory variables; the estimated elasticities should therefore be interpreted as indicative.

Nemovitosti, reality - byty, domy