In October, Spain’s services sector experienced a slight weakening in growth momentum, with a PMI reading of 54.9, falling short of expectations set at 57.0. However, this reading is still considered solid overall. Sales and demand both saw improvements, contributing to the strong activity in the sector. Additionally, job growth reached an 18-month high, providing a positive outlook for the economy.
According to the HCOB, Spain’s economy is still on a positive trajectory. Preliminary estimates from the national statistics office (INE) indicate that GDP grew by 0.8% quarter-on-quarter in the third quarter. While the Composite HCOB PMI showed a slight slowdown in June and July, it displayed solid growth signals in September and October. This trend suggests that growth of up to 3.0% could be achievable for 2024. The HCOB PMIs, especially in services, point towards a strong start to the fourth quarter.
The Spanish service sector continues to be a significant driver of growth, with the October HCOB PMI standing well above the long-term average. This reflects robust activity supported by strong demand from both domestic and international markets. The increasing demand not only drives business activity but also leads to a higher need for labor in the sector. Companies are actively seeking additional workers to meet the growing demand, as indicated by the Employment Index reaching its highest level in 18 months, showcasing confidence and momentum in services.
However, input price trends remain a critical issue in the Spanish services sector, impacting inflation dynamics. Core inflation, excluding energy and food prices, remains higher than the headline inflation rate and increased sharply on a monthly basis in October. This discrepancy highlights how persistent cost increases in the services sector significantly contribute to higher core inflation. Rising wages play a major role in this trend, with many service companies reporting wage pressures. To alleviate these challenges, companies often pass on the additional costs to consumers, further driving up prices in the sector.
Overall, despite the slight slowdown in growth momentum in October, the Spanish services sector continues to show resilience and strength. The positive trends in sales, demand, and job growth point towards a promising outlook for the economy in the coming months. As companies navigate through challenges related to input prices and inflation dynamics, maintaining a balance between cost management and meeting consumer demands will be crucial for sustained growth in the sector.
