Periphery business cycle monitor

Summary and outlook

• Euro area periphery data continues its improvement and most sovereign yields are now touching historical lows (10Y). Survey data remains at relatively high levels and the improvement is also seen in hard data as all countries excluding Greece have ended their recessions. There is room for further progress in domestic demand.

• The short-term outlook seems less challenging than it has been for a long time and in line with that the widespread improvement in economic sentiment appears more robust. Although we have seen a very good performance in the peripheral markets since the start of the year, there is still plenty of performance left.

• We look for a continued gradual improvement. The return of confidence is expected to result in a recovery in domestic private sector demand this year. In our view, there is upside risk to growth in the periphery as we expect pent-up demand in investments and durable consumer goods to boost growth.

Country details

• The gap between Italian service and manufacturing PMIs closed in February as service PMIs increased. We expect the Italian economy to continue to grow after it moved out of recession in Q4. Italian PMIs point to 1% q/q GDP growth in Q1, which is above our forecast.

• We continue to see strong numbers in Spain. PMIs rose in February, private consumption was 0.7% y/y in Q4, unemployment has fallen and industrial production is slowly rising.

• Greece is lagging the improvement in other periphery countries somewhat. Sentiment is however improving and manufacturing PMIs have been rising since October, reaching 51.3 in February.

• Portugal is currently one of the best examples of a periphery country in recovery. GDP growth was 0.6% q/q in Q4, unemployment continues to decline and consumer confidence suggests further improvements in private consumption.

• Irish PMIs remain high and continue to point to strong growth. Nevertheless, GDP growth declined in Q4, but it is volatile and it followed after two quarters of growth above 1%. The unemployment rate continues to decline and is now around the euro area average. Moreover house prices have bottomed.