New business picks up sharply
Data was collected from 5 to 18 December 2024, and Spain’s services sector saw an accelerated expansion during the month. A sharp rise in new business, along with recovery activity following flooding in parts of the country earlier in the year, supported this growth. Increased confidence in the future also linked this uptick in business activity to firms hiring more workers. Despite the ongoing pressure on production capacity, firms maintained a positive rate of employment growth. Survey respondents indicated that rising confidence was a key factor in driving this growth, with the HCOB Spain Services PMI® rising to 57.3 in December, up from 53.1 in November. This figure reflects the strongest expansion in activity since April 2023.
Economic Analysis
Many survey respondents attributed the growth to strong demand for their services, noting that some of the influencing factors included the market’s recovery from the effects of the DANA weather phenomenon (Depression at High Levels). Some also reported that flooding caused by the phenomenon contributed to increased demand for insurance and cleaning services. This increase in business activity was particularly evident in new business, which recorded the highest growth rate since April 2023.
Employment and Hiring
As business activity increased, companies continued to hire more workers to keep up with the increased demand. Employment grew for the 27th consecutive month, although the increase was less than in previous months. However, backlogs of work continued to rise, accelerating in December to their highest level since May 2022.
Inflation and Input Prices
In terms of prices, input costs accelerated significantly in December, driven by higher wages and fuel prices, which led to increased operating expenses. This increase in costs prompted companies to raise their prices to maintain their profit margins. Input price inflation was the highest in five months, while output charges also saw a significant increase, the strongest increase recorded in the survey in the last six months.
As for expectations, the data showed an improvement in confidence in December, with optimism reaching its highest level since May 2024. Hopes for an improvement in the general economic climate, as well as the expected growth in sales demand, were factors contributing to this optimism. Many service providers expect planned business activities to continue to drive growth over the coming year, amid hopes that the economic situation will continue to improve.
Overall, the services sector in Spain is undergoing a strong recovery, driven by high demand and strong business confidence in the future. This positive trend is expected to continue if demand grows and employment opportunities increase. In order to drive sustainability and future growth, companies in the service sector must continue to innovate and offer new services that meet changing market needs. Service providers must also strike a delicate balance between raising prices and protecting profit margins, while working to improve operational efficiency to cope with any potential future cost increases.
Private sector growth accelerates
In December, Spain’s private sector saw a marked improvement in growth, with the Composite Output Index reaching 56.8, up from 53.2 in November. Strong results in the services sector helped drive this growth, with manufacturing output rising strongly. New business volumes also rose significantly in December, supporting a fresh round of employment growth.
Private sector growth recovers in Spain in December 2024
Despite the increase in employment across the private sector, growth was not enough to prevent a rise in outstanding work, which reached its highest level since October 2021. At the same time, input prices and excise duties saw notable increases in December, reaching their highest levels in five and six months respectively.
Commenting on the PMI results, Jonas Veldhuizen, associate economist at Hamburg Commercial Bank, said: “These are impressive figures at the end of the year, with the HCOB composite PMI for Spain rising significantly in December, driven mainly by strong results in the services sector. The manufacturing sector also saw strong growth. Based on these developments, economic growth in Spain is expected to reach 3% in 2024.”
In the services sector, activity increased significantly in December, also reflected in an improvement in the order book. effects of the DANA weather phenomenon, which caused flooding in the Valencia region, contributed to an increase in insurance and reconstruction orders. This activity also led to an increase in foreign orders, boosted by increased tourism from neighboring European countries. Accordingly, this increased activity prompted companies to hire more workers to keep up with the increased work.
Prices continue to rise, with companies’ costs and prices increasing in December. With the pressure on companies due to rising wages and fuel prices, costs are increasing further. Looking at the full history of the price index, it is clear that input costs and output charges have not returned to pre-inflation levels, suggesting that the inflation problem may be increasing in the sector.
Forward outlook
This pressure on businesses is expected to continue in the coming months, due to rising wages and fuel prices. Despite these challenges, the expected growth in the private sector suggests that Spain is on a positive path towards 2024.
