Goldman Sachs and the European Economic Revival: Strategic Asset Allocation in Underappreciated Eurozone Markets

The Eurozone's economic trajectory in 2025 is marked by a fragile yet discernible recovery, with GDP growth projected at 0.8% for the year and 1.1% in 2026Eurozone Economic Outlook Q3 2025: Gradual recovery amid trade uncertainty and policy shifts^[1]. While southern economies like Spain outperform their northern counterparts, the region's structural rebalancing—driven by fiscal reindustrialization, defense spending, and green transitions—has created fertile ground for strategic asset allocation. Goldman Sachs, a key player in this revival, is capitalizing on underappreciated markets and sectors, positioning itself to benefit from Europe's long-term transformation.

Undervalued Markets: The Netherlands and Denmark

Eurozone stock markets trade at a 30% discount to their U.S. peers, with the Netherlands and Denmark standing out as particularly undervalued. Morningstar's price/fair value metric indicates these markets are undervalued by 10% and 14%, respectivelyWhere Are Europe’s Most Undervalued and Overvalued Stock Markets^[2]. This undervaluation is partly attributed to the outsized influence of single stocks—ASML in the Netherlands and Novo Nordisk in Denmark—which have underperformed in 2025. However, broader European markets are gaining traction as infrastructure and defense spending surge, particularly in Germany and SpainShould you invest in Europe?^[3]. For instance, Germany's €500 billion infrastructure and energy package is expected to stimulate power demand and modernize aging gridsRoad to Renewal: Investing in a New Era for Europe^[4].

Infrastructure and Defense: Goldman Sachs' Strategic Focus

Goldman Sachs has identified infrastructure and defense as critical pillars of the Eurozone's revival. The bank's 2025 strategic asset allocation emphasizes capital solutions for energy and infrastructure projects, including a newly created group bridging capital providers with funding needsGoldman Sachs (GS) Sees Revival in Europe Deals (M&A)^[5]. Defense spending, projected to rise to 3% of GDP in the EU over the next five years, could boost regional GDP by 2–3 percentage points if directed toward domestic equipment and infrastructureRoad to Renewal: Investing in a New Era for Europe^[6]. Germany's fiscal reforms and the EU's ReArm program are central to this shift, with Goldman Sachs estimating that $3.5 trillion in power sector investment is needed through 2035 to meet rising demand from electrification and data centersEurope Needs $3.5 Trillion of Power Investment Through 2035^[7].

Green Tech and Energy Transition: A $3.5 Trillion Opportunity

The energy transition is another focal area for Goldman Sachs, with the firm highlighting renewable energy, digital infrastructure, and resilient supply chains as high-growth sectorsInfrastructure in 2025: Megatrends and Mid-Market Opportunities^[8]. European countries are prioritizing green investments, including wind and solar projects, battery storage, and hydrogen production. Goldman Sachs notes that private equity activity in sustainability sectors has surged, driven by lower interest rates and favorable policy environmentsDelMorgan & Co.’s Analysis of 2025 Eurozone Market Activity^[9]. For example, Siemens and Total Energies in Germany trade at prices significantly below intrinsic value, offering attractive entry points for investors aligned with the green transitionIs Europe the Next Big Bet for Global Investors in 2025?^[10].

Navigating Risks: Trade Uncertainties and Selective Opportunities

Despite these opportunities, the Eurozone faces headwinds, including U.S. tariffs and global geopolitical tensions. These factors have introduced volatility into supply chains, particularly for exporters in Germany, Italy, and the NetherlandsFrom Tariffs to Rate Cuts: Eurozone’s Challenges and Opportunities in 2025^[11]. However, Goldman Sachs argues that Europe's market inefficiencies and unique return relationships between stocks create an “alpha-rich environment” for active investorsRoad to Renewal: Investing in a New Era for Europe^[12]. The firm advises a selective approach, emphasizing core and value-add infrastructure investments over speculative betsGoldman Sachs Reveals Lucrative Infrastructure Opportunities for 2025^[13].

Conclusion: A Strategic Window for Investors

Goldman Sachs' strategic asset allocation in the Eurozone reflects a nuanced understanding of the region's challenges and opportunities. By targeting undervalued markets like the Netherlands and Denmark, and high-growth sectors such as infrastructure, defense, and green tech, the firm is positioning itself to capitalize on Europe's long-term revival. While external risks persist, the Eurozone's fiscal and energy transitions present a compelling case for investors willing to navigate the complexities of a fragmented but resilient market.