Spain: Composite PMI moves to expansionary terrain in March for first time in eight months
The IHS Markit composite Purchasing Managers’ Index (PMI) jumped to 50.1 in March from 45.1 in February, reflecting stronger growth in the manufacturing sector and a much softer contraction in services activity. Consequently, the index moved above the 50-threshold, indicating a marginal increase in business activity over the previous month for the first time since July 2020.
The IHS Markit Manufacturing PMI jumped from 52.9 in February to an over 14-year high of 56.9 in March, indicating a stronger improvement in operating conditions in the manufacturing sector. Both new orders and output expanded solidly in March thanks to a robust upturn in demand. Moreover, firms expanded their workforce numbers for the first time in five months, while business confidence rose to its highest level in over three years. Furthermore, the combination of product shortages and delays in delivery drove input cost inflation to the highest in 10 years, which resulted in firms also lifting output charges to the greatest extent in 10 years.
Meanwhile, the IHS Markit Services PMI climbed to 48.1 in March from 43.1 in February, signaling the mildest contraction of services sector activity in eight months. Weaker reductions in activity and new business despite lingering Covid-19 restrictions were chiefly behind the improved reading. That said, sizable drops were again recorded in tourism and hospitality services. Meanwhile, although firms continued to cut jobs, the pace of decline was the softest in the current sequence. On the inflation front, input costs rose markedly again, amid rising prices for fuel, materials and transportation. However, companies continued to reduce output prices in order to remain competitive amid a weak demand environment, thus reducing margins further. Sentiment remained optimistic as firms expect an improvement in the overall business environment in the second half of 2021 thanks to vaccination programs.
Commenting on the Manufacturing PMI, Paul Smith, economics director at IHS Markit, said:
“As long as supply chains remain stretched, and with growth set to continue – expectations strengthened further in March – prices appear set to continue to rise for some time to come raising a real risk of a spillover into consumer price indices in the coming months.”
Meanwhile, commenting on the Services PMI, Smith stated:
“Although continuing to contract, the latest data on Spain’s services economy provided some hope of a stabilisation in the sector following a torrid few months. […] Nonetheless, a third wave of COVID-19 infections currently sweeping European countries leads to concerns of a further tightening of COVID-19 restrictions offers clear downside risks for the nearterm, especially for Spain’s key tourism sector which continues to struggle.”