Spain’s Service Sector Shows Impressive December Growth

What’s going on here?

Spain’s service sector grew in December at its fastest rate since April, thanks to solid demand and recovery from the floods in Valencia.

What does this mean?

S&P Global revealed that the HCOB Spain Services PMI rose to 57.3 in December, up from 53.1 in November, marking continued growth for the sixteenth consecutive month. This increase is mainly due to strong service demand and efforts following October’s severe Valencia floods. Businesses engaged in cleanup activities and managing heightened service inquiries have spurred sector growth. The sector’s employment has climbed for 27 straight months due to new orders and business uptick, though hiring has tapered with backlogs reaching heights not seen since May 2022. Nonetheless, the job market remains robust, with December unemployment at its lowest since 2007. Rising inflation pressures from increased wages and fuel costs prompted service firms to hike prices, marking the steepest rise in six months. Yet, optimism in the sector is at its highest since May 2024, buoyed by the central bank’s updated 3.1% economic growth forecast for the year.

Why should I care?

For markets: Demand leads the charge.

The expansion of Spain’s service sector signals strong economic health and tempting opportunities for investors. As service providers hike prices in response to rising input costs, improved profitability could follow. With Spain’s resilient labor market, marked by historically low December unemployment, consumer spending may also rise, further boosting demand.

The bigger picture: Growth on the horizon.

Spain’s economic outlook is promising, with the central bank raising its growth forecast to 3.1% this year. The resilience and expansion seen in both the service and manufacturing sectors suggest ongoing economic prosperity. This fits with the positive sentiment across Spain’s business sector, potentially pointing to wider economic stability and growth across the Eurozone, influencing both regional and global economic strategies.