MADRID Reuters factory activity in Spain contracted for the first time in a year and a half as inflationary pressures and macroeconomic uncertainty weighed on demand, a survey showed on Monday.
S&P Global's Purchasing Managers' Index PMI for manufacturing fell to 48.7 in July, down from 52.6 in June. The indicator in June was below the 50.0 level that was the first activity contraction since Jan. 2021, and the lowest since May 2020, when the country was in a strict lockdown.
Businesspeople polled by S&P Global said that some of them predicted a recession in the second half of the year because of the uncertainty.
Demand experienced a retrenchment both in domestic and international markets, which led to a drop in output, said Paul Smith, S&P Global's economist.
He said that firms' expectations have slumped noticeably, as a result of this. Companies are taking increasingly defensive positions due to the cuts in employment, inventories and purchasing, because they are concerned about the economic downturn in the coming months. The PMI survey doesn't bode well for the manufacturing sector in the third quarter after it expanded a scant 0.1% in the April to June period, according to data released by the official statistics agency INE on Friday.
The Spanish government maintained its GDP growth forecast for the full year at 4.3%, despite the headwinds, but lowered it to 2.7% for 2023. The second quarter's growth was unexpectedly high at 1.1%.
Spanish 12 month inflation to July increased to 10.8%, its fastest pace since 1984, according to INE on Friday.