The headline estimate misses on expectations but still reaffirms an expansion in Spain’s services sector to start the year. That being said, the rate of growth is the weakest since June last year. That amid reports of softer demand and cooler market conditions. Adding to that, employment also rose to a lesser degree, with some evidence of firms not
replacing leavers as expectations about the future softened to their lowest for six months.
On the prices front, cost pressures are seen intensifying as input price inflation accelerated to its highest level in a year. So, that’s something to be wary about.
HCOB notes that:
“The Spanish private sector economy is continuing to lose growth momentum, with the HCOB Composite PMI posting at the
lowest level since May 2025. The modest impetus is a result of weaker services-sector business activity growth combined
with a contraction in manufacturing output.
“The service sector is losing steam. This applies both to demand-driven business activity and to new orders, as well as hiring
intentions. Several panellists report that market demand has been cooling since the beginning of the year. This effect is
especially visible in foreign new business, which has declined in three out of the last four months. Foreign clients appear
increasingly cautious to spend in the face of heightened macroeconomic uncertainty.
“Looking ahead, the current slowdown is beginning to weigh on corporate expectations. The future confidence index
dropped sharply and now sits below its historical average. This deterioration is consistent with slower hiring activity, with
some firms choosing not to replace departing staff due to the softer growth backdrop. At the same time, outstanding
business continues to decline, offering further evidence of weakening activity levels.
“Price dynamics remain a point of concern in Spain’s services economy. Input price inflation, which is strongly influenced by
wage pressures, accelerated to its fastest pace in a year. These cost increases are being passed where possible directly
through to output prices. Although the euro area has avoided a wage‑price spiral in the aftermath of the pandemic and the
Russia‑Ukraine conflict, signs persist that this risk remains more pronounced in the Spanish economy.”
