Spanish industrial activity contracts due to the CPI and uncertainty

The pressure of prices makes a dent in the Spanish industrial activity. According to the S&P Global PMI indicator, the manufacturing sector deteriorated last July as consequence of the impact on demand of inflation and economic uncertaintyas reflected in the Purchasing Managers’ Index (PMI), which fell to 48.7 pointsfrom 52.6 in the previous month, for the first time since May 2020 below the 50-point threshold that separates growth from contraction.

“High inflation, coupled with considerable short-term economic uncertainty currently in Spain and around the world, hit the manufacturing economy heavily in July,” said Paul Smith, economist at S&P Global Market Intelligence, warning that the outlook in the short term for production it is clearly on the downside. In Spain, the year-on-year rate of inflation reached 10.8% in July.

“Such a downward trend is also seen in business expectations, which plummeted to a level similar to that seen in March, when the escalation of the conflict in Ukraine began,” he added, stressing that businesses are taking defensive positions in the face of a potential economic recession in the coming months.

And this data occurs despite the fact that “there was some attenuation of price pressures in July, since the inflation rates of prices paid and prices received were reduced to their minimum in seventeen and fifteen months, respectively.” Despite this, production prospects for the next twelve months fell into pessimistic territory, they point out in the publication of the data.

SMEs react

The Spanish business fabric, made up mostly of small and medium-sized companies, is already facing inflation in a situation of rising costs that is tightening the belt of these companies. Thus, from the Cepyme employers’ association, they explained that Spanish SMEs are already activating their own contingency plans to cope with the sharp increase in costs.

“The rise in energy prices, added especially to the strong increase in the prices of raw materials, reduces the production and operating capacity of Spanish SMEs. Faced with this situation, companies have already begun to take measures, such as adjusting their schedules in the face of the increase in energy prices, restructuring their production plans, even with partial or total temporary closures of part of their chains, and adjusting stocks,” they say.

In line with the results of the PMI survey, the sectors most affected by the increase in costs and that are already taking measures in this regard are those with intensive use of gas and electricity, such as the paper industry, metallurgy or steel. , among others.

environment collapse

In the case of eurozone setmanufacturing activity also slowed down in July, when the PMI fell to 49.8 points, compared to 52.1 in June, its worst reading in the last 25 months.

“The energy crisis adds to the risks that not only will weaker demand and reduced inventories cause manufacturing output to decline at a faster rate in the coming months, but that reduced energy supply will act as an additional drag. for the sector,” said Chris Williamson, chief economist at S&P Global Market Intelligence.

Germany, France, Italy and Spain all posted readings below the 50-point no-change level of their respective manufacturing PMIs in July. Greece also recorded a contraction, the first in just over a year and a half.


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