Periphery Business Cycle Monitor‏

The economic outlook for euro area periphery countries has actually showed some sign of improvement in recent months. Most of the soft indicators have finally started to increase. The improvement in soft data is also beginning to spill over to some hard data. The rapid increase in unemployment rates across the periphery appears to be losing momentum. Other hard data also shows early signs of stabilisation in some periphery countries.

The short-term outlook is likely to remain challenging. Nevertheless, we look for a continued gradual improvement in soft indicators as headwinds from fiscal tightening, credit tightening and fears of a euro break-up fade. On a six-month horizon, we expect the improvement in sentiment to support a slow stabilisation in domestic private sector demand, while export growth picks up more speed driven by the global recovery.

Country details
In Italy, political uncertainty has come down, which has supported an improvement in both PMIs and consumer confidence. Hard data generally shows continued deterioration although the pace of increase in the unemployment rate is slowing.

The composite PMI for Spain rose to a two-year high in May and is now close to signalling growth in Spain. Consumer confidence has also improved and now points to improvement in private consumption. Hard data shows tentative signs of stabilisation.

Manufacturing PMI for Greece bottomed in early 2012. Consumer confidence has also improved slowly from very low levels reached last autumn. Hard data shows fragile signs of stabilisation.

In Portugal, economic sentiment has improved since October 2010 but consumer confidence has lost some momentum in recent months. Retail sales appear to have stabilised and the increase in the unemployment rate is losing momentum.

In Ireland, soft indicators suggest that the recovery has lost some momentum. Hard data also shows some short-term weakness. The unemployment rate continues to decline, which partly reflects migration.

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