Spain’s manufacturing output rises for first time in 28 months

Manufacturing output in Spain increased for the first time in over two years, driven by the strength of exports, according to a regular survey by consultant Markit.

Markit’s Purchasing Managers’ Index (PMI) rose from 49.9 points in July to 51.1 points last month. A reading of over 50 points indicates expansion, the first time the sector has posted growth since April 2011.

Respondents in the survey attributed the pick-up to a rise in new orders. “Anecdotal evidence suggested that the increase in total new orders was driven by stronger client demand from foreign markets,” the report said, adding that the pace of growth was the highest in 32 months.

Spain booked its first current account surplus for the first half of the year since 1997 owing to a sharp fall in its trade deficit as exports rose sharply and imports declined. The export sector also helped reduce the pace of the decline in GDP in the second quarter to 0.1 percent from a 0.4 percent quarter-on-quarter decline in the first three months of the year, with the government expecting a return to growth later this year.

However, the survey indicated that firms used existing inventories to meet new orders rather than increase production. Despite a general increase in demand, companies continue to cut back on employment as part of efforts to increase efficiency.

Companies also took advantage of lower costs for inputs such as wheat and steel to cut their output prices.

“As has been the case in recent months, exports were the key source of positive momentum as growth quickened sharply,” Markit economist Andrew Harker said. “Firms appear still to doubt the sustainability of the current improvements, however, opting to raise output only modestly and often using existing stocks to meet new orders.”