At the end of 2024, the Spanish manufacturing sector concluded a strong year with positive signs of growth. Output and new orders expanded significantly at faster rates than in previous months. Capacity pressures helped boost employment, and companies intensified purchasing activity in response to increased production requirements. This coincided with a marked improvement in optimism about the future, with companies expecting growth to continue in the near term.
In terms of prices, inflation remained within a narrow range. Despite the increase in input prices, production costs remained well below the rates recorded after the pandemic, reflecting the improving economic situation in the country. Overall, the manufacturing Purchasing Managers’ Index (PMI) continued to rise, reaching 53.3 in December, up from 53.1 in November, remaining above the 50.0 mark that separates growth from contraction for the eleventh consecutive month.
One of the main drivers of this increase was the simultaneous and rapid growth in output and new orders. Firms reported a positive demand environment, successfully securing new business. Demand for products expanded broadly, with new exports seeing a significant increase, particularly to key markets such as Europe and North Africa. In response, firms ramped up purchasing to keep up with the increase in demand and production. However, there were delays in supplier deliveries due to challenges with local transportation, as a result of flooding in November due to Storm DANA.
Recent data shows that firms are beginning to rely more on existing stocks of inputs. Purchase stocks fell for the second month in a row in December, to their lowest level since February 2024. This reflects a cautious tone, with some firms still preferring to rely on existing stocks rather than purchase new materials amid logistical challenges.
Press on input prices
Continuing this positive trend, firms maintained a high level of employment. They added more staff to meet production needs, marking the fourth consecutive increase in employment. Despite the challenges facing the sector, backlogs continued to build at the end of 2024, extending the current growth period that has lasted for eleven months.
On the other hand, the pressure on input prices continued, with material costs rising significantly in December compared to previous months. However, the increase in prices was much lower than in previous years. This increase was due to increase in the prices of imported goods, especially those denominated in US dollars, which increased the pressure on Spanish manufacturers. However, the competitive pressures experienced by the domestic market contributed to reducing the ability of companies to raise prices, which reduced the impact of this increase on local markets.
With regard to final product prices, the decreases in production costs continued for the fourth consecutive month, although the changes in these prices were marginal. This reflects the ability of companies to absorb the higher costs due to competitive pressures, which allowed them to offer more stable prices despite external pressures.
Despite the increase in costs resulting from inflation in raw materials, Spanish companies maintained their competitiveness in global market, which highlights the strength of the Spanish industrial sector and its ability to adapt to economic challenges. These indicators are evidence of the long-term stability of the sector, as companies show clear resilience in face of internal and external pressures. Looking ahead, analysts expect continued growth in the Spanish manufacturing sector, despite some challenges that may arise in the coming periods.
Companies will still need to adapt to fluctuations in raw material costs, in addition to the need to improve supply chains to avoid any delays that may hinder production capacity.
The growing backlog of work is not surprising
Overall, Spain saw strong growth in the manufacturing sector in December 2024, with a significant improvement in production and export demand. Despite logistical challenges and price increases, the sector maintained positive trends thanks to continued improvements in economic performance indicators.
Commenting on the PMI data, the assistant economist at Hamburg Commercial Bank noted that Spain has shown great resilience in the face of the challenges facing the manufacturing sector in Europe. Spain has been characterized by strong growth in the industrial sector at a time when many other European countries were struggling with the repercussions of the economic crisis, such as large-scale layoffs, factory closures, and a decline in investment.
This Spanish growth can be explained by the availability of ample energy supplies, in addition to the relatively low dependence on China for exports. This reflects Spain’s ability to maintain the stability of its industrial production in the difficult economic conditions in Europe. He explained that industrial production in Spain is expected to see a significant increase in 2024, unlike other major countries in the Eurozone.
On the global level, he noted that industrial production is currently showing a moderate recovery. The manufacturing sector in Spain is benefiting from a strong demand situation, which has continued to grow over the past five months. Foreign orders have played a significant role in supporting this positive trend, prompting Spanish companies to look for more workers to cope with increased production.
Continuing this trend, Veldhuizen noted that the growing backlog of work was not surprising, as companies continue to expand their operations by purchasing more raw materials. However, companies faced increasing challenges, including shrinking inventories due to increased production and longer delivery times. Supply chain disruptions following floods in the Valencia region in November exacerbated these issues.
The new US administration has imposed tariffs
However, he noted that the increase in input prices has not been as severe as in previous years, when supply chains were severely affected by the Covid pandemic. Despite these challenges, the outlook for Spain’s manufacturing sector remains very encouraging. According to the HCOB PMI survey, Spanish companies are optimistic about the future. However, Veldhuizen pointed out that the weakness in Europe, the most important market for Spanish products, is expected to continue in 2025.
He added that the new US administration could impose tariffs that would disrupt global trade, which could impact Spanish exports. Although Spanish exporters are less dependent on the US market than some other European countries, the decline in global trade could have a negative impact on the Spanish economy.
Overall, the outlook for Spain is challenging, but remains very positive thanks to the resilience of the industrial sector, which is performing strongly compared to other European countries.
