For the fifth consecutive year, The Economist searches for the “economy of the year” by analyzing five indicators – inflation, “inflation breadth”, GDP, jobs and stock market performance – for 36 wealthy countries. They are ranked on each of these indicators and then assembled into an overall ranking of economic success in 2025.
So, the best was recognized as the economy of Southern Europe, namely Portugal. It was able to combine strong GDP growth, low inflation and a booming stock market in 2025. Other eurozone members that struggled in the 2010s, including Greece and Spain, are also at the top of the rankings. Israel continued its strong recovery from the chaos of 2023, while Ireland fell just a little short of the top spot. Colombia showed both strong economic growth and a thriving stock market.
The Nordic countries were the outsiders, with Estonia, Finland and Slovakia at the bottom. Germany performed slightly better than in previous years, but still underperformed, mainly due to a weak labor market. The UK had a similarly “lackluster” year. France, despite the political chaos, performed quite well. Across the Atlantic, America was caught in the middle and performed worse than Italy. Its labor market is strong, but high inflation drags down its overall score.
Who has what kind of inflation
The first metric is core inflation, which excludes food and energy prices because of their volatility. The closer the annual rate is to 2% – a typical target for central banks – the higher the country ranks.
Turkey’s inflation rate is far ahead of any other country because of the insane economic policies of its president, Recep Tayyip Erdogan. Estonia is second from the bottom, with core inflation of nearly 7% in the third quarter of 2025 as it continues to recover from the 2022 energy shock.
Many other countries have their own problems. UK core inflation is lower than a year ago, but at 4% it is still well above what the Bank of England would like to see.
In some countries, core inflation is too low. This includes Sweden, where it is virtually non-existent. To many consumers, tired of four years of soaring prices, this may seem fine. But in such a situation, economists worry about deflation, which suppresses spending and increases the real debt burden. A little inflation is better than no inflation at all.
Several other countries, including Finland and Switzerland, have similarly modest results.
“Inflation breadth” tells a similar story. This indicator tracks the share of goods in the consumer basket whose prices rise by more than 2% a year. In some countries, including America, it has jumped, likely as a result of overly aggressive fiscal policy. Even today, the prices of more than 85% of goods in Australians’ basket of goods are rising by more than 2% a year.
Who is growing the fastest
Portugal stands out in terms of growth rates and labor market conditions. Tourism is booming and many wealthy foreigners are moving to the country to take advantage of its low tax rates. GDP growth is well above the European average. The Czech Republic is showing decent growth in both output and employment, which puts it in the top third of the rankings. At the same time, South Korea is losing jobs. Norway, heavily dependent on commodities and shipping, is suffering from a slowdown in global trade.
Ireland recorded economic growth of over 12% year-on-year in the third quarter of this year, which is impressive but also misleading. The many large multinational companies that spend their profits through this country distort its national accounts. Irish economists therefore prefer to use “modified total domestic demand,” a similar measure that removes many of these distortions.
First on the stock markets
Stock markets are completing their valuations. One would expect U.S. stocks to be the unqualified winners. However, the gains in these stocks have been quite moderate. The high valuations of the U.S. market mostly reflect the gains of previous years.
France also performed mediocrely, with shares of its most expensive company, LVMH, treading water. Denmark was the worst performer by this measure. The share price of Novo Nordisk, the maker of Ozempic, fell 60% over the past year as the company lost its leadership in the weight loss drug market.
For big stock market gains, investors should change their vector. While Czech and South Korean firms have performed well this year, nowhere has done better than in Israel. Over the past year, the share price of the country’s most expensive public company, Bank Leumi, has risen about 70%.
Portuguese investors have also done well: the country’s stock market is up more than 20% in 2025. And that’s not the limit. The Economist calculates that the stock market of the country, which the publication calls “economy of the year,” will grow by 20% on average next year.
