Spain: Business activity strong in March despite dip in composite PMI
April 5, 2018
A moderate deceleration in broad-based output growth led the IHS Markit composite Purchasing Managers’ Index (PMI) to fall to 55.8 in March, down from its seven-month high of 57.1 in February. Notwithstanding the sequential decline, the index remains comfortably above the 50-point threshold, indicating healthy expansion in business activity in the Spanish economy.
The IHS Markit services PMI fell from 57.3 in February to 56.2 in March. Despite the drop in the headline figure, business activity was solid in March, underpinned by strong new order growth, which grew at a faster pace than in the previous month amid new commercial strategies and a pick-up in client demand. A moderation in business activity growth and stronger demand saw outstanding business mounting through the month.
Increased capacity pressure caused job creation to skyrocket in March, with employment growing at the fastest rate in over 11 years. Upbeat business sentiment and greater confidence in the 12-month outlook also encouraged companies to hire staff in growing efforts to invest in new product development. The acceleration in hiring fed through to higher input prices in the form of rising staff costs. As firms are experiencing a strong degree of pricing power amid robust demand, the hike in costs was passed on to consumers, and output prices subsequently rose.
Meanwhile, the IHS Markit manufacturing PMI dropped from 56.0 in February to 54.8 in March. The dip was caused by an easing in output growth compared to the previous month, although the expansion was still robust. On the other hand, new order growth continued to expand markedly for the 20th consecutive month. Slower output growth contributed to a strong rise in backlogs of work, which grew at the second-fastest rate in the history of the survey. Consequently, hiring activity picked up slightly in March, and purchasing activity also increased. Input cost inflation pressures eased, although input prices were still elevated due to sharper prices for raw material. Manufacturers passed on some of these costs to consumers by raising selling prices.
Spain GDP Forecast
FocusEconomics Consensus Forecast panelists expect GDP to expand 2.7% in 2018, which is unchanged from last month’s forecast. Panelists expect the economy to grow 2.3% in 2019.
Author: Lindsey Ice, Economist