Divergences continue to widen

Further falls in euro-zone business confidence in June add to evidence that the economic recovery will fade in the second half of the year. But just as importantly, there are growing signs that divergences between the core and the periphery are increasing. Not only has the industrial upturn been rather weaker in much of the periphery, the announced fiscal austerity measures are taking a rather heavier toll on consumer and business confidence in the likes of Spain, Greece and Portugal. Accordingly, over the coming quarters, we expect these peripheral economies to either remain in or fall back into recession.