Spanish Manufacturing Keeps Expanding Despite Slowing Momentum

Spain’s manufacturing sector continued to expand in the latest survey, but momentum has softened compared with recent months. Purchasing Managers’ Index (PMI) readings remain above the 50 threshold that separates growth from contraction, signaling ongoing output gains, yet new orders and hiring trends show a cautious tone. Firms reported steadier demand from domestic markets, while export growth was uneven, reflecting weaker external demand in some trading partners.

Input-cost inflation remained a concern for manufacturers, with many citing higher energy and commodity prices as pressures on margins. However, selling prices rose only modestly as competition and client negotiation constrained pass-through. Employment registers growth in select subsectors, such as durable goods and automotive suppliers, but the pace of hiring has cooled from earlier in the year as companies adjust to uncertain order books.

Survey respondents highlighted supply-chain normalization compared with pandemic-era disruption, though isolated bottlenecks persist for specific components. Inventories are being managed more actively: some firms reported rebuilding safety stocks, while others kept inventories lean to control working capital.

Analysts say the mixed signals point to a manufacturing cycle that is still positive but susceptible to downside risks. If global demand softens further or energy costs spike, output could decelerate more sharply. Conversely, stronger-than-expected recovery in key export markets or an improvement in investment spending would support continued expansion.

For markets and policymakers, the picture is nuanced. A gradual slowdown in manufacturing reduces upside pressure on inflation from the industrial sector, but sustained input-cost inflation complicates the outlook for corporate margins and pricing. The European Central Bank will likely weigh these developments alongside services-sector momentum and labor-market data when setting policy.

Investors should watch incoming industrial production figures, order books and sector-level employment for clearer direction. For now, Spain’s factory sector is holding onto growth, but the tempo has eased — a reminder that expansion is not uniform and remains contingent on both domestic demand and external conditions.