Spain’s service sector experienced a modest recovery in May, as reported by the S&P Global Purchasing Managers Index (PMI). The index rose to 50.1, indicating a return to growth after April’s decline, where it stood at 47.9. A PMI above 50 suggests expansion, while below 50 indicates contraction.

Economic Stability Amid Challenges

Paul Smith, economics director at S&P Global Market Intelligence, noted that the stabilization in demand and activity was a positive development. However, he cautioned that the underlying performance remained weak, with the private service sector potentially facing its worst quarter in over five years.

New business growth contributed to the slight increase in activity, although new export work continued to decline for the fifth consecutive month. This decline is attributed to demand instability and uncertainty linked to the Middle East conflict.

Employment and Pricing Trends

Employment in the service sector rose for the 44th month in a row, with firms hiring both permanent and temporary staff. This increase in capacity allowed companies to reduce outstanding business, with backlogs decreasing at the fastest rate since August 2023.

Despite these positive signs, input prices rose at a historically high pace, driven primarily by fuel and energy costs. However, output price inflation eased to a three-month low, offering some relief to businesses.

Outlook and Geopolitical Concerns

The outlook for Spain’s service sector improved to a three-month high, though it remained below average. Firms expressed concerns about geopolitical uncertainties impacting future growth prospects.

The composite PMI for Spain, which includes both manufacturing and services, rose to 50.2 from 48.7, indicating a marginal increase in overall private sector output.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.