Spain: Manufacturing growth to slow sharply at start of 2025

Spain’s manufacturing sector has started 2025 on a weaker footing than at the end of last year. Both output and new orders rose at markedly slower rates, while exports increased only slightly. Employment, meanwhile, was little changed compared with December, despite evidence of continued capacity constraints.

On the price front, input cost inflation accelerated to its highest level since last July and there was a return to higher output prices. Confidence in the future was broadly unchanged at a seven-month high in December.

The headline HCOB Spain Manufacturing Purchasing Managers’ Index (PMI) came in at 50.9 in January. This was down markedly from 53.3 in December and represented the slowest marginal growth rate since last August.

The decline in the PMI mainly reflects weaker gains in both output and new orders at the start of 2025. Output rose only slightly, while the modest rise in new work was the slowest in five months. Although demand remained positive, some participants noted a degree of uncertainty among customers. This was particularly evident in export markets, where foreign sales rose only slightly since December. While some participants reported stronger demand from North Africa, there were reports of weaker sales to key markets in Europe and Latin America.

Reflecting slower production and order book gains, participants cut their purchase and employment growth in January. In both cases, the rates of expansion were the weakest in five months.

Participants partly attributed their reluctance to hire to some extent to cost concerns. The latest data showed that input price inflation rose markedly in January to its highest level since last July.

Factory gate prices return to rise after four months of decline

Prices of inputs such as steel were said to have risen, while higher transport costs added to the cost burden. Suppliers were said to be willing to increase their prices despite evidence that they were taking longer to deliver inputs. In fact, firms complained of a further deterioration in supplier performance in January, noting that production delays, inventory shortages and transport bottlenecks all led to delays in receiving inputs – in some cases creating production challenges for manufacturers in January and using existing input stocks where possible. Faced with higher input costs, firms chose to raise their output prices very significantly in January, thus signalling a return to higher factory gate prices after four months of decline.

Finally, looking ahead to the next 12 months, firms overall expect output to increase from current levels. Confidence was broadly unchanged from the seven-month high in December. Manufacturers are looking forward to a mix of organic growth, new opportunities, economic growth and economic growth. Commenting on the PMI data, Jonas Veldhuizen, associate economist at Hamburg Commerzbank, said: “The new year has started weakly. Momentum in Spain’s manufacturing sector has slowed markedly at the start of 2025. This is due to production heading into recession, and order levels rising at a much slower rate,

after strong growth in both areas in the previous months. Foreign orders also stagnated broadly in January. Companies surveyed attribute this in part to weakness in major eurozone countries such as Germany and France. However, this has not dampened business expectations for the year ahead. Companies remain optimistic as new projects were launched at the start of the new year, with the aim of improving trade and production.

Passing higher input costs to consumers

Developments on the price front are a cause for concern. Input price inflation has accelerated for several months in a row, as the HCOB PMI indicates. However, we are still far from the high levels of input inflation observed in the wake of

supply bottlenecks following the pandemic and Russia’s invasion of Ukraine. Input price inflation is now close to its long-term average. For the first time in several months, producer prices also rose. The rise in prices can actually be explained by

With regard to consumer goods, the HCOB PMI indicated a slight weakness compared to the previous month, but growth remains strong overall, in line with recent trends. In contrast, the intermediate and investment goods sectors are stagnant at the start of the year. General weaknesses in key European industries, such as the automotive and machinery sectors, may now also affect Spain’s manufacturing industry, leading to weaker performance, especially in these sectors.

After several months of strong growth, manufacturing utilization did not change much in January. As additional staff were needed, companies did not refuse to hire, but cost pressures and restructuring efforts weighed on employment growth. However, backlogs of work have increased since a year ago. Together with positive business sentiment, this creates a stable environment for Spanish manufacturing employees.

The HCOB Spain Manufacturing PMI is compiled from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. The panel is classified by detailed sector and size of the company’s workforce, based on contributions to GDP. Data collection began in February 1998. Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable.

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