Activity in the Spanish industrial sector grew in October at its fastest pace in three months. The PMI indicator produced by IHS Markit reached 52.5 points in October, an improvement from 50.8 points in September. The 50 points mark the border between the expansion of the activity and the contraction.
Manufacturing production in Spain increased mainly in response to the new orders increases, whose increase was also the highest in the last three months. Businesses in general said that overall demand was stronger, albeit within the constraints posed by the persistent challenges related to covid-19. In any case, one of the first indicators referring to the fourth quarter of the year has shown good symptoms, after last Friday the GDP for the third quarter was known, in which the Spanish economy expanded at a record rate of 16.7 % (although it still has a year-on-year fall of close to 9%), after the debacle suffered between April and June.
Paul Smith, Director of Economics at IHS Markit, explains that in October, in Spain, there was “A welcome acceleration in the growth of manufacturing production”. It also warns that the increase in new orders was less than that of production and that this means that manufacturers increased their stock levels and also updated the jobs they had pending. In any case, this increase in activity only made possible a slight increase in industrial employment for the second consecutive month.
And, although the increase in sales was supported by international demand, especially from Europe and North Africa, its increase was modest. And overall, Smith notes that overall demand growth remained “relatively moderate,” both domestically and abroad, as the challenges posed by COVID-19 continue to affect. “Until the crisis is controlled, short-term growth is likely to remain limited. However, looking a little further into the future, respondents are increasingly confident that within a year the recovery could already be at a very advanced stage«, explica Smith.
With regard to prices, those of inputs continued to increase, albeit slightly. But this was accompanied by a reduction in sales prices, so that the current period of deflation has already lasted fourteen months, as a consequence of competitive pressures and deliberate efforts to generate new business.
Regarding manufacturers’ expectations, these improved in October, and confidence reached its highest level since February. This, thanks to the hope that the pandemic will have been completely controlled by this time next year and that there will be a strong economic recovery underway by that time.
Germany leads in Europe
The figures published in Spain were, in any case, somewhat weaker than those of the rest of the euro zone. So, the PMI manufacturing index in the Monetary Union stood at 54.8 points in October, more than two points higher than the Spanish one, to also mark its highest level in two and a half years. Germany was the country that registered the best result, scoring 58.2 points, its highest level in 31 months. The German industry was the one that registered the most pronounced increases in the region both in production and in new orders. The latter, in fact, marked a record growth in the history of the national survey, which is 25 years old.
Also ahead of Spain was Italy, whose indicator stood at 53.8 points, its highest level also in 31 months.
But in France the growth was more modest, to stand at 51.3 points.
“The euro zone manufacturing sector boomed in October as production and production order books grew at rates that have rarely been exceeded in the past two decades. However, although the data reveals a good forecast for production for the fourth quarter, the expansion is worryingly uneven, “explains Chris Williamson of IHS Markit. The fact is that, although Germany was the country with the best performance, and Italy, Spain and Austria also experienced encouraging improvements, France, Ireland and the Netherlands registered only modest growth and Greece has fallen back into contraction territory.
Williamson also warns of the “renewed weakness of consumer-oriented companies,” which is a “reminder” that while the industry as a whole may be booming for now, “The sustainability of the recovery will depend on the return of household behavior to normal and the strengthening of labor markets”. The economist concludes that “this reality seems to be still a bit distant” in view of the second waves of coronavirus infections.
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