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Business Confidence Improves In Italy & Portugal

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Sentiment has picked up across a couple of Eurozone economies according to today’s business confidence data. Italy has published a Business Confidence number for May of 99.7 and at the same time revised the April reading higher to also match the 99.7 reading, markets had expected just 99.6. Portugal has also produced an uptick in it’s Business Confidence indicator, today’s reading for May is showing 0.1 compared to -0.2 in April. Additionally Portugal has released a Consumer Confidence figure of -29.4, this represents an improvement on the previous month’s -30.3 figure.

Although these sentiment upticks are minor they still provide valuable clues to the underlying direction of these recovering Eurozone economies. The Portuguese figures are particularly pertinent this month as the country has very recently completed it’s EU/IMF bail out program. It is far too early to draw any conclusion as to how the Portuguese authorities are faring in their new role of managing the economy now that the bailout troika have left the scene. Sentiment indicators however can provide a clue as to how domestic businesses and consumers feel about the economic prospects of post bailout Portugal.

Today’s numbers would suggest that there is growing confidence present in the Portuguese economy. It is vital that sentiment is positive at this critical juncture in the country’s recovery, sentiment often becomes a self fulfilling prophecy and Portugal right now needs every stimulus available. The fact that consumers are willing to spend and businesses are willing to invest, albeit slowly at first, bodes very well for the prospects of a domestically driven recovery. Being willing to spend and invest however is only half the story, tight credit conditions mean that although the willingness is present the ability is not. Similar to many of the Eurozone’s periphery economies, Portugal urgently requires a loosening of the overly tight credit conditions currently dampening economic expansion.

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