Spanish services sector activity hints at corner being turned

The level of activity in the Spanish services sector in May contracted by the least in the current downturn of close to two years, providing some hope for something of a turnaround in the Spanish economy, currently mired in its second recession in barely four years.

Consultant Markit said Wednesday that its Purchasing Managers’ Index (PMI) for last month rose to 47.3 points from 44.4 points in April. That still left it below the 50-point level that marks the half-way point between contraction and expansion. However, that was the smallest decline in the past 23 months.

Markit said new business and employment fell at slower rates. Of the sectors monitored, only financial intermediation posted a rise in activity, while the biggest declines were in post and telecommunications, and transport and storage companies. Although new orders fell, the consultant noted some “tentative” signs of a stabilization in demand.

Employment continued to decline sharply as companies cut their payrolls due to decreasing workloads.

“Although signaling a continuation of the decline in the sector, the latest services PMI data for Spain provide some cause for optimism,” Markit economist Andrew Harker said. “Activity moved closer to stabilization than at any time since mid-2011.

“Following on from a similar trend in the manufacturing PMI data, maybe we are starting to see some light at the end of the tunnel. Developments in the wider euro area economy over the next few months will probably be key to whether this turns out to be a false dawn or the start of a sustained recovery,” Harker added.