Activity in services sector continues to contract

The level of activity in the Spanish services sector shrank for the 14th month in a row in August as businessmen fretted about the impact of the hike in the value-added tax (VAT) rate on already weak demand, according to a monthly survey by consultant Markit released on Wednesday.

Markit’s Purchasing Managers’ Index (PMI) came in at 44.0 points last month, up from 43.7 percent. A reading of below 50 points indicates a contraction in activity.

The services sector accounts for about two-thirds of Spain’s GDP and employment. The Spanish economy has slipped back into recession for the second time in three years, with the government forecasting a contraction of 1.5 percent in GDP this year.

New business and employment continued to fall sharply in the month, although the pace of contraction was somewhat slower. Although higher fuel costs pushed up input prices, companies continued to lower the prices they charge.

Weak business sentiment was impacted further by concerns about the rise in the standard VAT rate to 21 percent from 18 percent that took effect at the start of this month.

“The summer months have so far provided no respite for the Spanish service sector, and August data showed the current downturn continuing along much the same path as has been seen throughout 2012 so far,” market economist Andrew Harker said.