This is still solid growth, but a noticeable undershoot of estimates for Spain’s services sector. Overall activity and new business saw modest gains this month, but the output was the weakest since January. HCOB notes that:

“Spain’s services sector, which has shown a very robust pace of expansion in recent months, is gradually losing steam, but is still quite solid with a PMI reading of 53.4 points. GDP growth is likely to be supported by the good performance of the services sector in the second quarter, while the sector’s impact on economic growth was neutral in the first quarter.

“PMIs show that the expansion may continue in the coming months, as new business also increased – at a declining pace – and backlog even increased slightly more than the previous month. Looking ahead, even more companies than in the previous month believe that business volume will be greater next year than it is now. All this fits in with the fact that Spain’s central bank recently raised its growth forecast to 2.3%, an above-average number compared to the eurozone as a whole.

“Price pressures are easing somewhat according to PMIs, which is basically good news if you want inflation to come down. However, companies are still able to pass on at least some of the increase in input prices to end customers. In fact, according to Spain’s statistics office, the core rate of inflation, which excludes energy and food, is coming down only very tentatively from a relatively high level.

“The regional elections that have already taken place, as well as the general elections that will be held in Spain at the end of July, have been cited by some companies as one of the reasons why the pace of expansion has slowed. Uncertainty about the future government’s plans is likely to play an important role here.”

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