The services sector boosts dynamism thanks to the better evolution of sales while the manufacturing sector reduces its contraction
All the organisms anticipate that the Spanish economy -and world- will step on the brake this year. The expected growth in Spain for this year is around 1% (1.3% according to the Bank of Spain), well below the 5.5% that the Gross Domestic Product (GDP) rose in 2022. However, one of the Leading indicators of economic activity, the PMI (a survey of businesses on the purchase orders they receive), has moved into positive territory after four straight months of contraction. This index increased in January to 51.6 points from 49.9 in December 2022, reported S&P Global Market Intelligence. This rise is the most pronounced since July of last year and is above the average rise registered in the euro zone. Euro zone private sector activity rose in January for the first time since June 2022 and the PMI rose to 50.3 from 49.3 in December last year. Spain is among the countries that recorded the best activity data at the start of 2023 with an improvement of 1.7 points compared to the increase of one point on average in the euro zone.
The improvement in private sector activity in Spain is mainly due to the boost in the services sector, whose PMI rose to 52.7 points from 51.6 the previous month, thanks to better sales performance. On the contrary, the manufacturing sector continued to contract, although at a lesser intensity, with a record of 48.4 points compared to 46.4 in December. When the PMI index is above 50 it indicates an expansion; below 50, contraction; and if it is less than 42, it anticipates a recession in the economy.
Companies in the service sector registered a solid increase in new orders received, including a strengthening of foreign demand, which increased for the first time in seven months. The increase in new orders caused companies to increase their workforces for the fourth consecutive month. “Businesses are hopeful that conditions will continue to improve over the next 12 months and have increased their workforce as a result for the fourth month in a row,” said Laura Denman, economist at S&P Global Market Intelligence. However, Denman also warned that confidence remained below its historical average and respondents expressed concern about inflationary pressures.
escape the recession
As for the improvement in the euro zone, which returned to positive territory, “this is good news and suggests that the euro zone could escape a recession,” said Chris Williamson, chief economist at S&P Global Market Intelligence. But “it is still too early to completely ignore recession risks,” warned Williamson, for whom the impact of rising interest rates on economic growth has yet to be fully experienced. This Thursday, the European Central Bank (ECB) raised interest rates again by half a point to 3% and has warned of further increases this year.
Activity in the service sector, which weighs the most, returned to growth last month, with consumers coping with the rising cost of living and fueling a modest rebound in demand. The service sector PMI rose to 50.8 from 49.8 in the previous month, while the manufacturing PMI remained in contraction, at 48.8 from 47.8 in December, still its best result since August 2022.
The recovery for the third consecutive month in the levels of business activity in the euro area was possible thanks to a lower drop in demand, as new orders received fell at the weakest pace in the last seven months, including a stabilization of demand in the services sector.
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