Euro-Area Periphery Data Continues To Improve

Euro-area periphery data continues improvement, and is in line with sovereign spreads that have tightened further. In particular the Spanish economy looks stronger and the 10-year spread between Spain and Germany are below 200bp for the first time since May 2011. We see upside risk to Spanish growth in the coming years and expect GDP growth at 0.8% in 2014 compared to consensus expectations of 0.6%. In most of the periphery countries hard data show signs of stabilisation, generally confirming the picture from soft data, even though some of the latest improvements still need to be seen.

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 this year. In our view 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. The short-term outlook seems less challenging than it has been for a long time and the widespread improvement in economic sentiment appears more robust. This supports our view of a recovery, where the spread between core EU and the periphery is slowly grinding tighter.

Country details

Italian service PMI is still below 50. Manufacturing PMI moved to 53.3, which is the highest since early 2011. There is still room for improvement in hard data such as industrial production, consumption and unemployment but there are signs of stabilisation.

Spanish service PMI came out at an impressive 54.2, a level that has not been seen since mid-2007. Manufacturing PMIs moved to 50.8, which confirms our view of higher growth in Q4 than in Q3. See Spanish economy rising from the dust .

The economic outlook in Greece is slowly improving and manufacturing PMI continues to show the positive trend since early 2013 and is now close to 50. The unemployment rate continues to move sideways, being at 27.4% in September.

The Portuguese economy continues its progress. Economic sentiment increases and in line with consumer confidence private consumption decreases at a slower yearly pace. Industrial production and retail sales are on a slow upward trend.

In Ireland PMIs have risen a bit again and are still at high levels, which continue to point to strong growth. Consumer confidence has recently jumped to pre-crisis levels and retail sales are on a slightly upward trend.

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