Eco Pulse

Spain | Manufacturing sector up sharply


Unsurprisingly, the Spanish economy remains positive at the start of the second quarter. After outperforming eurozone countries with growth of 0.7% q/q in Q1, activity should stay strong in Q2 (0.5% q/q according to our forecasts).

Business sentiment in the private sector, which has been improving steadily since the start of the year, continued its upward trend in April (composite PMI at 55.7; +0.4 points over a month). Unlike the rest of the eurozone, this performance was buoyed by growth in manufacturing activity, to a degree comparable with its 2022 level (manufacturing PMI at 52.2), thanks to a revival in domestic and foreign demand (new orders component up 2.1 points over a month, at 52.5). For its part, the services sector continues to impress – the associated PMI remains well within the expansion zone (56.2; +0.1 points over the month).

Driven by this favourable economic environment, household confidence improved (+1.2 points to -14.7 according to the European Commission). Expectations that the ECB will cut interest rates from June onwards led to a clear improvement in the expectations component of the financial situation (-1.9; +1.4 points) and in intentions to make major purchases over the course of the year (-22; best level in four years). Nevertheless, savings intentions also jumped (-1.4; +6.6 points and the highest level since 2000), suggesting that household consumption could be lower in 2024 than it was in 2023.

Harmonised inflation also rose again in April (+3.4% y/y; +0.1 pp), mainly due to rising energy prices (+5.0% y/y; +3.4 pp) and, to a lesser extent, food prices (+4.7% y/y; +0.4 pp). Services prices, on the other hand, are starting to slow down (+3.5% y/y; -0.6 pp), leading to a slowdown in core inflation (+2.7% y/y, -0.4 pp).

After more than ten years in power in Catalonia, the pro-independence parties have finally lost their absolute majority. The Socialist Party, the winner of the regional elections, will have to establish a coalition agreement to secure an absolute majority and form a government. However, given the political fragmentation, these negotiations could end in deadlock. Moreover, as they had announced before these elections, the pro-independence parties could also jeopardise the already fragile parliamentary majority of the national government, whose indispensable partners they are.

Article completed on 24 May 2024