Nor the expected strength of the tourist season It seems that it will free Spain from the contraction of the economy in the third quarter of the year. This is what the August Purchasing Managers’ Indices (PMI) announced this Tuesday. These early indicators, drawn from business surveys, reflect the first contraction in the service sector in nine months.
Specifically, the Services Sector Commercial Activity PMI in Spain from S&P Global prepared by the Hamburg Commercial Bank (HCOM) fell from the reading of 52.8 points recorded in July to 49.3 in August. Significantly, the index moved below the no-change level of 50 for the first time since October 2022ending the previous nine-month expansion sequence (readings above 50 points).
Although the deterioration in activity in the Spanish service sector was only mild overall, the pace of decline was the strongest in just under a year. This, together with the drop in PMI manufacturing (from 47.8 to 46.5 points) published last Friday, has caused the Composite PMI was 48.6 points in August compared to 51.7 in July, also being in contraction for the first time since December 2022.
August survey data points to a renewed contraction in Spain’s services sector, as levels of activity and new orders They decreased for the first time since last October. The new reductions were accompanied by a new slowdown in the growth of the employmentsince the job creation rate was the weakest since last January.
On the other hand, the rate of cost inflation of inputs accelerated to its three-month high. Nonetheless, sales prices rose at the slowest pace in just under two years. Despite the vast negative trends registered in August, companies in the Spanish service sector were more optimistic about the future than in July.
In the last period of the survey (carried out between August 10 and 25), the HCOM report notes, there were evident signs of an environment of slowdown in demand, which contributed to the renewed drop in activity. New order intake contracted for the first time in ten months, albeit only slightly. Conditions were especially weak in terms of foreign market demand. Data for August pointed to a renewed contraction in new export orders, the sharpest in ten months.
Companies responded to the decrease in new orders received by reducing the growth rate of their workforce. Although the level of employment continued to increase, the growth rate in August was the least pronounced since last January
The sustained hiring of employment together with the drop in new orders allowed companies to have excess capacity to update the work to be completed in the middle of the third quarter of the year. Backlogs contracted for the first time this year and at the fastest rate since September 2022. Some of the companies surveyed even mentioned that they had completely eliminated backlogged workloads.
As for the prices, input costs increased for the thirty-ninth consecutive month. In fact, after accelerating again since July, the rate of increase was the strongest in three months. Reports of increasing wage pressures remained widespread among companies surveyed. Rising fuel costs also attracted attention as a current inflation driver.
Companies continued to pass these cost increases on to their customers, leading to a sustained increase in sales prices. However, unlike the trend observed for input costs, the selling price inflation rate continued its current downward trajectory and reached its lowest level in almost two years.
Lastly, despite the weakening trends in the sector, business growth expectations were positive in August and the degree of confidence It even strengthened slightly compared to that observed in the previous survey period. The factors that supported the optimism were the hopes of an improvement of the conditions of the market, as well as the planned investments in the commercial departments of the companies. However, sentiment remained historically subdued.
End the “good cheer”
“Summer is coming to an end and with it comes the good mood among Spanish service companies, including the tourism sector. Activity in this sector contracted for the first time this year and the same happened with the service sector in general. , new orders and backorders, so things are likely to continue to slow down over the next few months,” Cyrus de la Rubia, chief economist at HCOM, explains in the report with the data.
“Our real-time GDP estimate, which takes into account PMI indicators, is indicating a GDP contraction of 0.1% in the third quarter. This could cast some doubt on the GDP prediction. Bank of Spainrecently raised, of GDP growth of 2.3% this year, especially if we also see a new drop in economic activity in the next quarter,” continues De la Rubia. If this decline of 0.1% quarter-on-quarter is confirmed, the positive sequence would be cut short growth in the first half of the year (0.5% in the first quarter and 0.4% in the second).
According to the expert, the situation in August has been different for Spain. “In many regions, the population was suffering from the heat wavethe political uncertainty was a burden for many companies in the midst of the recent general elections, while winning the women’s world soccer championship It certainly lifted people’s spirits. While all this was going on, companies were less interested in hiring more staff, but somewhat more optimistic about the future than before, as they expect activity to pick up in twelve months’ time.”
“The pricing power of Spanish utility companies has continued to suffer as the pace of price increases is slowing, even though input prices have risen at a faster rate. As a result, it is probably the profit margins are affected,” concludes the economist.
