Mapping Europe’s Barbell

Morgan Stanley

Jitania Kandhari

Research

10 Pages

Jitania Kandhari explores how Europe is shifting from decades of fiscal restraint toward economic security, with capital flowing into defense, energy, digital infrastructure and advanced manufacturing. She maps a regional barbell that pairs targeted bets on recovering Southern and Eastern economies with broad themes like electrification, while noting Germany’s €500 billion commitment to infrastructure and defense.

Key Takeaways

Deleveraged Periphery: Ireland's private non-financial debt fell from 377% to 116% of GDP and Spain's from 234% to 119%, strengthening peripheral bank balance sheets.
Periphery Leads Growth: Since early 2021, nominal GDP in Portugal, Spain and Greece has grown 45% to 55%, versus 25% to 30% in France, Germany and Italy.
Industry Moves East: Eurozone industrial output sits 3% below 2021 levels while Poland's production rises, positioning Eastern Europe as a growing manufacturing hub.
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