Confidence Among Companies in Spain Weakens Midway Through 2012

July 09, 2012 /

Sentiment among Spanish private sector companies has dropped from the start of the year, according to the latest Markit Business Outlook Survey. With business revenues set to stagnate and profits forecast to fall, companies in Spain predict further job shedding to take place over the coming year, signalling further woe for the Spanish labour market.

The June survey also suggests that companies in Spain expect the recent slowdown in inflationary pressures to persist, with input costs predicted to fall slightly. This will provide further leeway for output price discounting.

Across the Spanish private sector, a net balance of just +11 percent of companies forecast activity to
increase over the coming year. This is down from a net balance of +16 percent in February and lower than the Eurozone average (+16 percent).

A contrasting picture between the manufacturing and service sectors is signalled in June, with manufacturing sentiment picking up while service providers are generally less optimistic than at the start of the year.
Manufacturing respondents highlight external markets as a key opportunity for growth as the economic crisis in Spain hits underlying domestic demand. Service providers, on the other hand, highlight fears of ongoing weakness in consumer spending.

The labour market is set to bear the brunt of the weakness in the Spanish economy, with the employment net balance of -16 percent only slightly less negative than at the start of the year. The net balance for Spain is also lower than both the global and Eurozone averages.

Across the Spanish private sector, input costs are forecast to edge lower over the next 12 months.

This prediction follows expectations of a slight rise in the previous outlook survey. Pessimism around
profitability has intensified, however, with firms set to lower charges in an attempt to stimulate growth
of new business.

Across Europe as a whole, sentiment has dropped markedly since February, with a notable slump in confidence in Germany and deteriorating outlooks in Italy, Spain and the UK. Companies expect weaker growth of activity, new business and revenues compared with the situation in February.

Employment is set to be largely stagnant, while minimal changes in investment are anticipated. A fall in business confidence is apparent at the global level. Growth of activity is expected by +37 percent of private sector firms on balance, down from +44 percent in February. However, sentiment remains above that recorded in late-2011. US firms continue to be among the most positive in their growth expectations, although optimism has dipped since the previous outlook survey. Confidence across the BRIC economies is robust overall, although differences are evident at the national level, with Brazilian and Indian companies notably
more bullish than those in China and Russia.

Firms around the world report lower expectations regarding input cost inflation, following recent price
falls for many commodities. Output charges are set to rise at a weaker pace accordingly.

Andrew Harker, Economist at survey compilers Markit, says: “The latest outlook report suggests that firms see
little sign of any improvement in the economy over the coming year. In fact, sentiment has worsened since the start of 2012. The coming year again looks difficult for those searching for work, with both monitored sectors forecasting job cuts.

“Services companies have posted the most downbeat outlook since the financial crisis at the end of 2008, with new business set to stagnate despite strong discounting in an attempt to boost sales.

“Sentiment at Spanish manufacturers, meanwhile, has held up reasonably well in the middle part of 2012, although this is mainly reflective of hopes that external demand will make up for a lack of growth in the domestic market.”


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