Slowdown in Spanish manufacturing eases

The pace of the slowdown in Spanish manufacturing eased in July, beating expectations, but the sector still contracted for the 15th straight month and employment shrank at its fastest rate in more than two years, a poll showed.

Markit's Purchasing Managers' Index (PMI) of manufacturing companies stood at 42.3 in July, up from 41.1 in June and beating forecasts in a Reuters survey for a reading of 40.5.It was the slowest rate of contraction since April, though still well below the 50 line separating growth from decline.

"The latest manufacturing PMI data for Spain highlight why so much attention is focused on the economy at the moment, as output and employment continued their downward trajectories," said Markit economist Andrew Harker.

Spain's manufacturing sector is dominated by the automotive and aerospace industries, both of which have come under pressure as the euro zone debt crisis has hit global demand.

Spain's Treasury has seen its debt costs spiral to euro-era highs in the past week on concerns the country may need to apply for a full sovereign bailout as its recession deepens and it fights to deflate a massive public shortfall.

Preliminary data showed on Monday that gross domestic product contracted by 0.4 percent in the first three months of the year from a quarter earlier, while the unemployment rate rose to a record 24.6 percent.

Markit's figures showed manufacturing employment shrank for the 21st straight month and at its fastest pace since December 2009, registering 41.5 in July after 41.8 a month earlier, with companies reporting falling workloads and attempts to cut costs as
reasons for layoffs.

"Demand continued to fall sharply moving into the second half of the year, with the domestic market reported to be particularly weak. The labour market continued to bear the brunt of the difficulties in the sector as the rate of job cuts accelerated again,"
Mr Harker said.

Markit's poll showed worsening conditions in July in the sub-indices of new orders and output while new export orders index showed new business from abroad also fell.

Companies reported lower output costs in an attempt to rein in new business in an increasingly competitive environment, while input prices dropped as demand for raw materials fell, the survey showed.

Reuters