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


Fears among companies of going through a recession in the second half of the year are increasing

The services sector is still booming in July and is unaware of the biggest drop in production in more than two years recorded by Spanish factories, which have started to shut down their machines amid the energy crisis. At this point, companies in the national GDP-leading sector 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 the future outlook are pushing confidence to its lowest level in nearly two years as fears of a recession in the economy mount in the second half of July.

This follows from the services sector business activity index (PMI) published yesterday by S&P, which came in at 53.8 points, compared to 54 a month earlier. Companies reported that the start of new projects coupled with higher numbers of new orders were the main factors supporting activity. New orders rose for the sixth consecutive month, although the latest increase was small.

Inflation remained a major concern for Spanish service companies, this survey finds. Although it fell to a six-month low from June, the pace of cost increases remained substantial. Energy and other utility bills were again a major source of upward price pressure, while rising wages were also reported to be contributing to rising operating costs.

Businesses again passed higher prices to customers where possible, and the most recent data shows a sharp rise in fees charged, despite inflation also falling to its lowest level since the start of the year.

“The Spanish services sector performed positively in July, with activity growing at a solid pace, supported by higher levels of new orders and job creation,” said Paul Smith, an economist at S&P Global Market Intelligence.

Smith warned that as the uptick in activity linked to the easing of pandemic restrictions continues to wane, the companies surveyed reported growing hesitation among customers amid rising inflation and fears of an economic downturn.

Source: La Verdad


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