Periphery business cycle monitor

Summary and outlook

• Euro area periphery countries have shown great improvement in sentiment during 2013 and in line with that sovereign spreads have tightened. Even though the pace of progress has lost a bit of momentum recently, soft indicators have reached a level where they point to a return to growth in most of the countries. Spain ended its recession in Q3 and for the other countries also hard data shows tentative signs of improvement and generally confirms that the recession will come to an end. However, the decline in the unemployment rate seen in most of the countries has generally been adjusted to sideways movements.

• We look for a continued gradual improvement in data helped by the global recovery. The return of confidence is expected to result in a slow recovery in domestic private sector demand next year. Looking into 2014, there is an upside risk to growth in the periphery as we expect pent-up demand in investments and durable consumer goods to boost growth when confidence returns. Nevertheless, the short-term outlook remains challenging.

Country details

• In Italy, soft indicators have stabilised at relatively high levels. PMIs point to positive growth in Q3 and consumer confidence suggests higher private consumption. Hard data also improves as the pace of the yearly decline in retail sales and industrial production slows.

• The nine quarters’ long recession in Spain ended in Q3 with growth at 0.1% q/q. Breakdowns in sub-components have not been released yet but consumer confidence and retail sales point to higher growth in private consumption.

• Manufacturing PMI for Greece has improved substantially during 2013 but the pace of improvement has lost some momentum. Consumer confidence moves sideways and does not indicate higher private consumption. Hard data shows tentative sign of stabilisation.

• In Portugal, the signs of progress continue. Economic sentiment increases, consumer confidence suggests higher growth in private consumption and the unemployment rate continues to decline after it peaked in January 2013.

• In Ireland, manufacturing PMI is catching up with services, which rebounded to above 60 again. Also, consumer confidence is improving and the recovery in the housing market is continuing. The recent data suggests strong GDP growth in H2 in the range 0.5-1.0% q/q.