2023-08-03 16:30:40
In the second part of the year the economy will cool down after the good pace it has had in the first. This is what the majority of organizations anticipate and the first data that began to be published on the activity in the month of July indicate this. One of the best measures of the state of health of the economy is the PMI, which in July continued to grow in the services sector but at a much slower rate, which shows the change in trend towards slowdown.
The progress of this sector that includes restaurants, tourism, commerce or leisure lost momentum in July for the second consecutive month due to weak demand from households, for whom high prices and the rise in interest rates begin to be affected by the loss of purchasing power and savings. Thus, the PMI index published this Thursday by S&P Global stood at 52.8, still expanding (above 50 indicates growth in activity and below, contraction), but six tenths less than the 53.4 registered in June and the weakest reading so far this year.
The authors of the study acknowledge that this reading is “quite modest” and the companies surveyed that registered an increase in activity attributed it mostly to new projects rather than to improving the existing one. “The service sector has lost some momentum in the growth of activity and, more significantly, in that of new orders,” explained Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, co-author of the study.
The data
52.8 points
is the PMI index for the services sector registered by Spain in July, still above the 50 points that separates economic expansion from contraction and much higher than that of the rest of the European powers, all of which are in a contraction phase.
A deterioration in activity much less than in Europe. Thus, with the S&P data for the euro area also released this Thursday, which reveal a worsening of activity in July, they place Spain as the only major euro economy that managed to expand last month. In fact, the PMI index for the euro zone stood at 48.6 points in July, which reveals contraction and its worst reading in eight months; point and a half less than in June. Only Spain remains above the 50-point threshold, with Italy (48.9), Germany (48.5) and France (46.6) registering contractions in activity not seen since the end of the pandemic.
Impact on employment
This situation will lead to an increase in unemployment, as predicted by De la Rubia: «The second half of the year has had a bad start for the euro zone. No guessing skills are required to see that job growth will stall in the coming months given the gloomier outlook for the economy,’ he noted.
Even so, he recognized that in Spain the services sector remains in good shape thanks mainly to the fact that inflation is already around 2% in our country, which is maintaining part of the demand. He also assures that the general elections on July 23 did not have any notable impact on the service sector. For their part, the companies surveyed assured that the increase in wages is the main factor why they continue to raise prices to offset the increase in costs.
Instead, the report finds that business costs are falling to near pre-war levels, but business confidence fell in July to the lowest level since March. And that the sector is resisting “despite the continuous efforts of the European Central Bank (ECB) to slow down the economy by tightening monetary policy,” said De la Rubia.
Tourism, a key sector
The Spanish services sector represents approximately half of the country’s economic production and, within this sector, tourism is the fundamental leg on which economic growth is being established so far this year. Record arrivals of foreign tourists, who are spending even more than before the pandemic, has boosted GDP growth in the first and second quarters (0.5% and 0.4% respectively, according to INE data).
In fact, another PMI survey on the activity of Spanish factories in July published this week showed a contraction in this sector for the fifth consecutive month. Therefore, if the services sector begins to show signs of slowing down, it would cause a greater than expected loss of GDP in the second part of the year.
The government forecasts is that the economy will grow by 2.1% this year after 5.5% in 2022, still the best data for the large economies in the euro zone. Furthermore, organizations of the stature of the International Monetary Fund (IMF) forecast that Spanish GDP will grow this year by 2.5%, almost triple the average for the euro area.
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