Spain’s Services Sector Shrinks for First Time in Nearly Three Years as Geopolitical Uncertainty Bites
MADRID, May 6 (Reuters) — Spain’s services sector slipped into contraction in April for the first time in nearly three years, as geopolitical tensions linked to the U.S.-Israeli military campaign against Iran rattled consumer and corporate confidence, according to a closely watched business survey released Wednesday.
The S&P Global Spain Services PMI Business Activity Index dropped to 47.9 in April from 53.3 in March, falling below the 50-point threshold that separates expansion from contraction. The reading marked the weakest performance since August 2023 and caught many analysts off guard after months of relative resilience in Europe’s fourth-largest economy.
“Firms widely reported that market demand had softened as widespread uncertainty led businesses and consumers alike to hesitate when it came to spending decisions,” said Paul Smith, economics director at S&P Global Market Intelligence. He added that the deteriorating outlook, largely driven by the ongoing conflict, appeared to be keeping companies’ pricing power “just about in check.”
New business volumes fell for the first time since June 2023 and at the steepest rate in over four years. Export demand was particularly weak, with international sales declining at the fastest clip since mid-2022, underscoring how the war’s ripple effects are hitting trade flows across the Mediterranean and beyond.
Confidence among service providers sank to its lowest level since December 2022, as firms reported that clients were postponing investment decisions and new projects amid a fragile geopolitical environment. “We’re seeing a freeze in decision-making across the board,” said Carlos Mendez, a Madrid-based hotel owner. “People are scared — they don’t know if the conflict will spill over, and that’s killing any appetite for expansion.”
On a more caustic note, Barcelona-based tech consultant Elena Rivas said: “This is what happens when governments play with fire. The war is a thousand miles away, but the economic fallout is landing right on our doorstep. And no one in Brussels or Madrid seems to have a real plan.”
Employment, however, continued to rise in April, extending a streak that dates back to October 2022, though the pace of hiring softened from the previous month. Backlogs of work edged up for a second consecutive month, partly due to shortages of products such as IT equipment that hindered contract fulfilment — a lingering supply-chain headache that predates the current crisis.
Price pressures remained elevated. Input costs rose at a historically high pace, driven by energy, fuel, supplier and wage costs, while output charges increased markedly and were little changed from March’s seven-month high. Small business owner Ana Torres, who runs a catering service in Seville, said: “We’re paying more for everything — gas, ingredients, even the paper napkins — but we can’t pass it all on to customers without losing them. It’s a squeeze from every side.”
The weakness in services dragged the S&P Global Spain Composite PMI down to 48.7 from 52.4, pushing overall private sector activity into contraction territory for the first time in nearly two and a half years, even as manufacturing output posted a solid gain. The divergence between a still-expanding factory sector and a shrinking services economy suggests the recovery is becoming increasingly lopsided.
Analysts warn that if the geopolitical situation does not stabilise soon, the services downturn could deepen and begin to spill over into manufacturing and employment. For now, Spain’s economy is navigating choppy waters — and the compass is pointing south.
(Reporting by David Latona; Editing by Joe Bavier)