Spain’s Service Sector on the Mend

Spain's Service Sector On The Mend

Spain’s Service Sector on the Mend

Spain’s service sector has had a rough ride in the last few years as business activity among service providers has slowed dramatically due to the economic slump.

The service sector survived the impact of the crisis longer than the country’s industrial sector, but by end-2008 declining consumer confidence, soaring unemployment and a dire business environment took its toll.

But now it looks as if things are picking up for the sector, which accounts for about half of Spain’s economic output. It recorded the fastest expansion in six and a half years in December, according to a survey published last month by the financial information and services firm Markit.

This data compares favourably with indicators from Eurozone peers Italy and France.

Markit’s Purchasing Managers’ Index (PMI) of service companies stood at 54.2 in December, up from 51.5 in November, marking the second straight month of positive data. A reading above 50.0 indicates that activity is on the increase.

So what’s behind the change in trend? And is it sustainable?

NEW BUSINESS GROWS AT PRE-DOWNTURN RATES

Markit’s report on the Spanish service sector features original survey data collected from a representative panel of over 300 companies. The poll focuses on new business, backlogs of work, prices charged, input prices, employment and activity expectations.

Panellists indicated signs of improving business conditions and increased client demand, although this in part was due to companies cutting prices due to competitive pressures.

The Transport & Storage business led the overall expansion in activity in December, closely followed by Financial Intermediation, fuelled by the improved situation of Spanish banks following an industry restructuring.

Two of the most most interesting aspects of the survey showed that new business increased for the fifth successive month in December at rates not seen since prior to the economic downturn; and that the rate of job cuts eased for the second month on the trot and was the slowest since the current sequence of falling employment began in March 2008.

Optimism amongst companies was the second highest since July 2007.

SERVICES REVIVAL REFLECTS IMPROVING ECONOMY

The positive sentiment registered in the December service sector poll underscores the tentative economic recovery seen in recent months. Spain’s economy is expected to return to low growth in 2014 after it exited a two-year recession in the third quarter of last year, driven by strong exports and less weak domestic demand.

Selective businesses in the service sector will be key drivers of a sustained economic revival, including hotels and restaurants which have benefited from the boom in Spain’s tourism industry.

A continued rise in M&A in the financial and consultancy industries will also ensure Spain’s service sector’s recovery is sustainable.

For information on Spain’s service sector, contact corporate law firm Argali Abogados.

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