Spanish services sector expanded at an accelerated rate in December, with growth supported by a sharp rise in new business and recovery activities following floods that hit parts of the country earlier in 2024. With confidence in expectations also rising, companies continued to hire additional workers although energy remained under pressure as backlogs rose again.
On the price front, input cost inflation accelerated in December as companies sought to protect margins by raising their prices stronger.
The main index from the survey, the PMI® of HCOB Spain services, recorded above the decisive no-change mark of 50.0 in December for the sixteenth consecutive month. Moreover, the index rose to 57.3, from 53.1 in November, indicating the strongest monthly rise in business activity since April 2023.
Companies attributed the rise in growth mainly to strong underlying demand for their services. Some participants pointed to the normalization of market activity in the wake of the negative impact of the DANA weather phenomenon (low temperatures at high levels). Others commented that the associated flooding supported demand and activity through increased insurance claims and associated cleanup work. Overall, new incoming business volumes rose sharply in December, with the sharpest rate of expansion since April 2023. Growth was in total new business supported by a return to higher new export sales at the end of 2024 amid reports of increased tourism from nearby European countries.
Participants hired additional staff to help deal with higher activity and new business demands. Recruitment subsequently increased for the twenty-seventh consecutive month. Growth was remarkable, albeit slowing to its lowest level since July. Despite the increase in employee numbers, work backs continued to rise, with growth accelerating to its highest level since May 2022.
Market Reactions to Spanish Services PMI
The immediate impact of this positive PMI reading was felt across all financial markets. The euro gained strength against major currencies, reflecting increased investor confidence in the Spanish economy. Following the release, the EUR/USD pair saw bullish momentum as traders reacted to the impressive data.
The performance of the services sector is critical to the euro zone economy, and strong indicators from Spain could enhance the public perception of the euro’s resilience. In addition, stocks in the Spanish market benefited from PMI results, with major indices reversing gains as investor sentiment turned higher. Stocks related to the hospitality, travel and retail sectors, which are closely related to services activity, rose significantly, suggesting that market participants are betting on sustainable growth in these sectors.
The Services PMI is a crucial measure of the economic landscape, measuring the performance of the services sector, a vital component of Spain’s economy. Since services account for a large portion of GDP. A strong PMI reads points to increased business activity, higher employment, and higher consumer spending.
Moreover, analysts noted that a strong PMI in the services sector could lead to upward revisions to Spain’s GDP growth forecast, reinforcing expectations of a strong recovery trajectory. As the economy shows signs of resilience. This may prompt the ECB to reassess its stance on monetary policy, especially as inflation fears continue to emerge.
The ECB has been closely monitoring economic indicators to gauge whether to maintain accommodative policies or consider tightening measures. Strong services PMI could influence ECB decisions at upcoming meetings. As policymakers weigh the need for stimulus against the backdrop of rising economic activity.
Spain’s services PMI forecast for the current month
Looking ahead, market participants are very interested in the outlook for the current month. With Spain’s services sector continuing to show strength, analysts expect the PMI to remain elevated, reflecting continued growth in consumer spending and business activity.
However, it is essential to keep in mind that while the current PMI reading is encouraging. External factors such as inflation pressures, supply chain challenges and geopolitical tensions may affect future performance. The resilience of the services sector will be tested in the face of these challenges. And any signs of slowing growth may weigh on market sentiment.
The upcoming PMI release will be closely scrutinized by investors and policymakers alike. As it will provide further insights into the trajectory of the Spanish economy. If the PMI remains above the neutral 50 level. It will confirm the expansionary trend and boost confidence in the broader recovery in the Eurozone.
This unexpected rise in the services PMI indicates a strong expansion in the Spanish services sector, reflecting positive sentiment among businesses and consumers alike. Since the PMI is a key indicator of economic health, its repercussions extend to different market dynamics, influencing investor behavior.
The latest Spanish services PMI reading at 57.3 not only reflects a strong recovery in the services sector. But also has significant implications for financial markets. Investor sentiment and monetary policy considerations.
As Spain continues to navigate the post-pandemic landscape. The resilience of the service sector will play a pivotal role in shaping economic outcomes. Future PMI data will be crucial in monitoring this trajectory. And market participants will remain vigilant in assessing the implications of the euro and broader economic conditions in the Eurozone.
