Apart from Montenegro which has been strongly affected by both crises, the East Med countries have been on average more resilient (see fig. 1). Recoveries since the pandemic have been strong, and expected rates of growth in the near future are also the highest among all Med countries. In particular, Albania and Serbia showed the highest growth rate in the basin between 2020-2022.

Presumably, in the latter countries the long-run effects of the transition towards a market economy have freed up positive forces and reduced market restrictions, thereby favouring growth.

The resilience of the East Med countries and the relative fragility of the Euro Med countries has deep roots. In the last two decades the former countries have been growing more strongly, while the latter have been at best stagnating. Between the year 2000 and 2021 Albania recorded an increase in per capita GDP of almost 150 per cent. Over the same period, Serbia saw its per capita GDP grow by 128 per cent while Bosnia and Herzegovina, Montenegro and Croatia all reported significant increases in their GDP per capita (see fig. 3). In contrast, more advanced Euro Med economies have grown at an average of 0.3 per cent per year over the last two decades: over the same period in France, GDP per capita has increased by 13 per cent, in Portugal and Spain by 10 per cent. Italy is an exception: over the last two decades it has seen its GDP per capita even shrink by almost 3 per cent. The data clearly show that Euro Med countries have structural fragilities which prevent their economies growing at a significant rate and, most importantly, their degree of resilience to external shocks has diminished. This is particularly true for Italy for which a combination of low company productivity and financial fragility linked to the high level of public debt restricts the growth dynamics and makes the country more susceptible to global crises.¶{p. 75}

A combination of factors has recently affected in the Med area not only economic growth but also investment prospects: rising geopolitical tensions and ensuing trade disruption, the anti-COVID-19 China closure measures, recently released, inflationary pressure and the related increase in the cost of borrowing have all reduced growth across the globe and increased the level of uncertainty and risk. Hence investments, already under pressure before the COVID-19 pandemic set in, are expected to remain below their average long-term rate.

South Med countries have experienced the greatest fall in the share of investment to GDP in the last two decades. Investments which were on average 27.3 per cent of GDP in the decade 2000-2009, declined to 25.9 per cent in the following decade, and are expected to fall even further by 2027, reaching a level of about 22 per cent of GDP (see tab. 1). Egypt, Jordan, Tunisia, the West Bank and Gaza have experienced the biggest fall in investment as a share of GDP, while only Israel among South Med countries will see its share of investment increase from 23 per cent of GDP over the last two decades to 25 per cent in 2027. East Med countries will also register a drop in the level of investment from 26 per cent of GDP from the previous two decades to an expected 22 per cent of GDP in 2027. The investment dynamic in the Euro Med countries follows a similar downward path and is expected to fall from an average of 23.7 to 21.4 in 2023 and to remain stable at this level.

Indeed, the share of investment in GDP of most Euro Med countries decreased substantially in the years following the Debt crisis in 2010. As a consequence of the sharp increase in country risks and in the spread on government bonds, Italy, Greece, Spain and Portugal all witnessed a sizeable reduction in investment as a share of GDP in the years 2012-2015 notwithstanding a reduction in GDP itself. Figure 4 clearly shows the steep reduction in investment in the above countries, while for example this did not occur in France.

Given that investments lie at the heart of economic growth over the medium and long term, a reduction in investments is a major concern and clearly compromises potential growth in the Med area. Capital accumulation increases labour productivity and real wages directly; moreover, it is able to increase capital productivity itself when investments finance research and the ¶{p. 77}development of new technologies. In a context in which inequality has increased everywhere and the welfare and health systems are under strain because of the pandemic, the Ukrainian war and population aging, well-targeted investments are essential to allow governments to increase per capita GDP and to pursue redistributive policies.