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Spain's manufacturing activity grew in December at its slowest pace in ten months

An employee works in a factory in Banyoles, Girona. Agustí Ensesa

The lack of Commodities and inflationary pressures continue to put the growth of Spanish manufacturing activity to the test, which has slowed down in December to reach minimum levels in the last ten months. The purchasing manager index (PMI) of this sector stood at 56.2 points at the end of 2021, compared to the 57.1 registered in November, as reported by the IHS Markit consultancy this Monday. The reading is above the 50 mark, which represents the frontier between growth and contraction in this indicator that analysts use as a leading thermometer on activity. Despite the fact that the data remains in positive territory, the growth rate was already the slowest since February, both in Spain and in the euro area.

The slowdown was mainly due to weaker growth in new orders due to the impact of cost increases. In fact, the fees charged continued their upward trend in December, although with less force than the previous month. Businesses faced another rapid rise in input prices, the same as those related to electricity and transportation services, and also warned of a mismatch between supply and demand. For their part, providers encountered difficulties in obtaining transit services, especially maritime transport. Although average delivery times were lengthened at a slower rate, the delays were considerable, among the longest seen during the pandemic to date.

The firms expect production to continue increasing over the next few months, in the same way that confidence in the future grows, despite the advance of the omicron variant. This improvement in the short- and medium-term outlook helped boost hiring, which led to job growth.

The companies surveyed by the consultancy expressed concern about the persistence of supply problems and price increases as factors that are likely to have an adverse impact on the performance of the sector in the coming months. Faced with these challenges, companies struggled to search for raw materials available in the market, which caused an almost record increase in the stock of supplies. “The shortage of materials imposed a certain restriction on productive capacities, and companies continued to make an effort to source and reinforce the stocks whenever possible. An early purchase of products is likely to add to the pressure on already strained supply chains, ”said Paul Smith, Chief Financial Officer of IHS Markit. On the other hand, it is possible that this increase in supply provides a respite to the production chains, which since the beginning of the recovery have been restricted by the lack of raw materials.

Slowdown of growth in the euro area

The data for Spain are in the same line as the rest of Europe. Although inflationary pressures are easing slightly and the supply chain crisis has eased, growth in manufacturing activity remains at half throttle. The PMI index for the euro area sector in December fell 0.4 points to 58, its lowest reading in ten months.

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Not all euro area countries showed the same evolution. Italy once again led industrial growth in the euro zone, although its rate of expansion slowed. By contrast, France's industrial sector continued to post the weakest growth among the eight countries studied. According to Joe Hayes, an economist at IHS Markit, the slowdown in inflation rates is a welcome sign, but the future scenario is still critical. “We are facing a new outbreak of economic uncertainty as the omicron variant emerges in Europe. Interruptions in supply chains driven by COVID-19 cannot be ruled out and, therefore, further increases in inflation cannot be excluded ”, he pointed out.

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