New Orders in Spain Decrease at Fastest Pace Since October 2011

Michelle Remo, “Big 4″ observer
August 07, 2012 /

The Spanish service sector continued to struggle at the start of the second half of 2012 as the ongoing economic crisis in Spain impacted negatively on business conditions.

Activity, new orders and employment all decreased again over the month, with the fall in new business the sharpest since last October. Furthermore, companies forecast a decline in activity over the next 12 months as sentiment dropped to the lowest in more than three years.

The headline seasonally adjusted Business Activity Index posted 43.7 in July, following a reading of 43.4 in the previous month. Activity has now fallen in 13 successive months, and the latest reduction was only marginally slower than seen in June. Hotels & Restaurants was the only sector to record activity growth, while the fastest reduction was recorded at Post & Telecommunications companies.

Respondents indicated that falling new business had been the main factor behind the drop in activity. In turn, new orders declined as clients were hesitant to embark on new projects given deteriorating economic conditions. New orders fell at a sharp pace that was the fastest since October 2011.

Companies worked through outstanding business in July as new orders decreased. Backlogs of work were depleted at a substantial pace, and the steepest in seven months.

Service providers continued to lower their staffing levels during July. Employment has now fallen in each of the past 53 months. The rate of job shedding was substantial, and faster than that recorded in June. Of the six monitored sectors, the sharpest fall in employment was posted at Renting & Business Activities companies.

According to respondents, the reduction in staffing levels partly reflected expectations of a further deterioration in economic conditions. Services companies expect activity to fall over the coming 12 months, the first time this has been the case since May 2009. The forthcoming rise in VAT is forecast to further reduce consumer demand, and therefore business activity.

Input costs rose in July following a slight fall in the previous month. That said, the rate of inflation was only marginal and much weaker than the series average. Panellists indicated that negotiations with suppliers had helped to limit cost inflation.

A further reduction in output prices was recorded during the month as companies attempted to boost new business. Furthermore, the rate of decline in charges accelerated to the strongest since May

Andrew Harker, economist at Markit and author of the report said: “July was another difficult month for Spanish service providers as new business fell at an accelerated pace. Another negative development
was on the employment front as the rate of job cuts accelerated, suggesting that the rise in the unemployment rate to 24.6% in Q2 may still not represent a peak.

“Perhaps the most worrying aspect of the latest survey is the lowest business sentiment in more than three years, partly reflecting the negative expected impact on consumption of the forthcoming rise in VAT.”


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