The periphery countries have shown some weakness in line with the rest of the euro area . However, measured in terms of PMIs, Ireland and Spain have been less negatively affected than the rest of the euro area and we expect the growth rate in 2014 to be the highest since the financial crisis kicked in. Portuguese leading indicators remain consistent with a continued slow recovery, whereas Italy is the weak link.
We expect private consumption to increase , as the unemployment rate trends lower and the decline in commodity prices has supported real wage growth in the periphery countries. The ECB's monetary easing and the end of the asset quality review and stress test should support credit growth and reduce the headwind to economic activity.
Peripheral government bond markets remain nervous but volatility has come off the peak in mid-October . One reason is probably that investors have started to close the books before year-end and that liquidity in general is weak in the peripheral markets.
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