- Prior 48.4
Despite the reading being higher than estimates, it still marks a further contraction in Spain’s manufacturing sector as it is lower than May. Worsening demand conditions continue to weigh as downturns in output and new orders were both sustained. HCOB notes that:
“In Spain, there are signs of a mild recession for the manufacturing sector, or perhaps just stagnation. For example, the
HCOB PMI production index is slightly in contractionary territory for the second time in a row, and companies are purchasing
fewer goods than in the previous month, without the contraction having accelerated here.
“In sectoral terms, the decline in output is once again concentrated in particular on intermediate goods, which many
companies had apparently stocked up on to a somewhat exaggerated extent for fear of supply chain bottlenecks, which are
now normalizing. However, output is being stabilized by capital goods, benefiting from stronger demand from projects
financed by the EU Next Generation Fund, among other things. And things are likely to remain stable here, as the order
situation has improved in this subsector.
“The weakness in the manufacturing sector is likely to continue for a few more months, as new orders overall fell for the third
month in a row. The fact that this downturn is unlikely to be particularly deep can also be seen from the fact that the
companies surveyed – after a dip in the second half of 2022 – are only now starting to cut staff and the corresponding index
value of slightly below 50 points does not signal strong downward momentum. Some stability is also provided by order
backlogs, which, according to DG ECFIN, fell in the second quarter but remain at a relatively high level in historical terms
with a range of over five months.
“On the price front, companies have already been cutting their selling prices for three months. Indeed, Spain’s inflation is
currently among the lowest in the eurozone. However, this should not obscure the fact that the core rate of inflation, which
excludes energy and food, is broadly in the middle within the monetary union at 6.1% and is significantly influenced by prices
in the services sector, which is growing robustly providing companies with pricing power.”