Spain: Composite PMI suggests strong growth in January
February 5, 2018
Solid business conditions in the service sector and resilient dynamics in manufacturing led the IHS Markit composite Purchasing Managers’ Index (PMI) to pick up to 56.7 in January from 55.4 in the previous month, marking the third consecutive rise in the index and the highest reading in six months. As a result, the index lies further above the 50-point threshold, indicating healthy expansion in business activity in the Spanish economy.
Business conditions in Spain’s service sector improved markedly in January, with the IHS Markit services PMI rising from 54.6 in December to 56.9 in January, a seven-month high. The increase in the index was largely attributable to a favorable economic environment, boosting growth in business activity and new orders. In addition, due to upbeat business conditions, new business growth and company expansion plans, firms kept up the healthy pace of job creation seen throughout Q4 in January. On the inflation front, input prices rose at the fastest clip in nearly a decade on the back of higher labor and fuel costs, and supplier charges. Output prices also increased as strong demand prompted firms to pass part of the higher cost burden to consumers, with output inflation at its fastest in almost 11 years. Meanwhile, business confidence remained upbeat, with optimism among firms reaching the highest level in seven months.
Conversely, the IHS Markit manufacturing PMI recorded a slight decline in January, moderating to 55.2 from 55.8 in December. Despite edging down, January’s PMI still signaled a solid performance in the Spanish manufacturing sector. Output growth was robust in January, driven by a faster rise in new orders amid stronger demand both at home and abroad. The pace of hiring also remained solid in January despite moderating slightly from December, as firms responded to a continued increase in backlogs of work and higher production targets. On the price front, input cost inflation was high due to rising raw material prices, particularly for oil and metals. These higher costs translated to higher output prices. As was the case among service providers, business sentiment among manufacturers improved from the previous month, as firms expected output to increase in the coming months.
Author: Javier Colato, Economist