The activity of Spanish service sector stabilizes in May, after having registered a contraction in April for the first time since August 2023, according to the PMI index. «The relative stability of demand and activity after the contractions recorded in April was a positive development in May and offers the hope that the economic slowdown in Spain will be relatively mild«. However, S&P Global Market Intelligence adds that, «despite the relative improvement in May, underlying result remains weak and the private services sector continues to head toward its worst quarter in more than five years.» In May, the PMI index of the commercial activity of the services sector in Spain registered 50.1. This figure, compared to that registered in April (47.9), points to a stabilization of activity after the decline observed in the previous month. «Companies continue to report a high degree of instability in the marketcharacterized by uncertainty and budget adjustment after the energy and supply crisis caused by the war in the Middle East. Given that a resolution to the conflict has not yet been reached, it is understandable that the outlook remains especially uncertain and, consequently, sentiment remains subdued compared to historical standards, indicating a lower than expected economic performance at least in the short termas activity is likely to remain weak and inflation remains well above trend,» they say. Specifically, the slight increase in activity was supported by a return to growth in new order volumes. Companies linked this improvement to a demand reboundalthough some respondents noted unstable market conditions due to persistent uncertainty related to the conflict in the Middle East. This resulted in weak growth in new orders overall and companies also noted continued declines in new orders from overseas customers (for the fifth consecutive month). It was also reported that high prices caused some fragility in demand and the companies surveyed continued to mention notable inflationary pressures. Purchase prices rose again at an extremely high rate, being Power and fuel the main drivers of increased operating expenses. Companies continued to report that supplier prices and labor costs had also increased. Consequently, service companies tried to increase their sales prices. May survey data indicated that inflation of prices charged remained above trendreflecting a marked increase in sales prices. However, Inflation eased to its lowest level in three monthsamid some reports that competitive pressure was limiting pricing power. The outlook remained unusually uncertain in May. Despite improving to its highest level in three months, confidence in future activity was well below average. While some companies expect to benefit from investments in commercial activities and renewed stability in demand over the next twelve months, uncertainty related to the conflict in the Middle East negatively affected sentiment. However, the companies hired additional staff in May. He Job growth was strong and improved regarding the April reading. The companies said the increase in staff reflected a mix of temporary and permanent contracts offered to new employees. Increased capacity and recent underlying sales weakness allowed companies reduce backlog for first time in three months. The pace of contraction was also the steepest since August 2023.
