Spain economy disappoints as manufacturing shrinks at fastest rate in more than six years

A lacklustre new survey result showed new orders and output tumbled last month, suggesting the Spanish economy recorded a weak end to the second quarter, the period April to June. IHS Markit’s Purchasing Managers’ Index (PMI) of manufacturing companies slumped to 47.9 in June, down from the 50.1 reached in May. This marks the second time the index has dropped below the 50 line separating growth from contraction since February. In order for a sector to slip into recession territory, it must have shrunk for record two consecutive quarters.

Paul Smith, economics director at IHS Markit, said: “The latest data indicate that there is a real chance that the industrial sector will prove to be a drag on second quarter economic output.

“The sector is being buffeted by a challenging economic environment, characterised by ongoing global trade tensions and political uncertainties.”

The manufacturing output index dropped to 47.4 in June from 50.0 in May, the first time the output index contracted since November 2013.

Spain had a stronger start to the year after the economy grew 0.7 percent in the first quarter – January to March – as gross domestic product increased at its fastest pace since the end of 2017.

This compared to growth of 0.6 percent quarter-on-quarter and 2.3 percent year-on-year registered in the fourth quarter.

Strong domestic demand was to thank for the boost, but experts are suggesting the economy will drop off slightly in the second quarter.

Gross domestic product is expected to have grown by 0.6 percent in the April to June period.

The Bank of Spain sees activity easing in the next few years, with gross domestic product expanding by 2.4 percent this year.

This will then drop to 1.9 percent next year and 1.7 percent in 2021.

It points to risks including international protectionism and political uncertainty due to Brexit.

Meanwhile, figures last week showed retail sales in Spain rose by 2.4 percent in May from a year earlier on a calendar-adjusted basis, the National Statistics Institute (INE) said.

This is after increasing by a revised 1.3 percent in April.