Service sector activity continues to grow, but confidence in the future plummets

Service sector activity continues to grow, but confidence in the future plummets

Fear increases among companies to suffer a recession in the second half

Lucia Palacios

The services sector is still in full expansion in July and oblivious to the biggest drop in production in more than two years registered by Spanish factories, which have begun to stop their machines pushed by the energy crisis. For the moment, companies in the sector that leads the national GDP registered another solid increase in activity and continued to hire additional staff. However, the increase in orders can be described as modest and concerns about future prospects cause confidence to fall to the lowest levels for almost two years, as fears of a recession in the economy become more common. second half of July.

This follows from the service sector business activity index (PMI) published yesterday by S&P, which stood at 53.8 points, compared to 54 the previous month. Companies reported that the start of new projects combined with higher levels of new orders were the main factors supporting activity. New orders increased for the sixth consecutive month, although the latest increase was small.

Inflation continued to be a major concern for Spanish service companies, this survey reveals. Although it declined from June to its six-month low, the rate of cost increase remained considerable. Energy and other utility bills were again a key source of upward price pressure, while there were also reports that rising wages were adding to rising operating expenses.

Businesses again passed on higher prices paid to customers whenever possible, and the latest data shows a strong degree of increase in fees charged, despite inflation also falling to its lowest level since early year.

"Spain's services sector performed positively in July, with activity expanding at a solid pace, supported by higher levels of new orders and new job creation," said Paul Smith, economist at S&P Global Market Intelligence.

Smith cautioned that as the uptick in activity related to the easing of pandemic restrictions continues to fade, businesses surveyed reported growing customer hesitancy due to rising inflation and fears of an economic downturn.

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