Periphery business cycle monitor

Summary and outlook

• Euro area periphery countries continue to show improvements in sentiment, although a setback in some indicators in September underlines the fragility of the recovery. Sovereign spreads have continued to tighten on the back of a decline in political risk. The improvement is slowly becoming visible in hard data too. There are tentative signs that the recession is coming to an end in most peripheral countries.

• We look for a continued gradual improvement helped by the global recovery. The return of confidence is expected to result in a slow recovery in domestic private sector demand next year. The recovery is supported by fading headwinds from fiscal tightening and a perceived decline in political risks. Nevertheless, the short-term outlook remains challenging.

Country details

• In Italy manufacturing PMI and consumer confidence fell back slightly in September, while services PMI reached a two and a half year high. All points to positive growth. However, turning points in retail sales and industrial production remain to be seen.

• In Spain both manufacturing and services PMI fell back slightly in September, while consumer confidence reached the highest level since December 2011. Service sector business expectations are at the highest level in more than three years.

• In Greece manufacturing PMI bottomed in 2012 and continues to improve towards 50 albeit with a small setback in September. Consumer confidence improved slightly in September but does not yet suggest a pick-up in private consumption.

• In Portugal economic sentiment has been on an increasing trend since October 2012.Consumer confidence is at the highest level in three years.

• In Ireland consumer confidence has increased to the highest level in six and a half years. Services PMI fell back in September but still signals strong growth.