Spain June manufacturing PMI 51.4 vs 50.5 expected

• Prior 50.5

That’s the best reading for the year so far as the Spanish manufacturing sector posts modest growth towards the end of Q2. There was an improvement in output with orders also increasing for the first time since January. HCOB notes that:

“June brought slight improvements in Spain’s manufacturing sector, as indicated by the HCOB headline PMI. Throughout the
year, the sector has hovered around the 50-point threshold, suggesting a lack of clear direction following a strong
performance in 2024. The recent uptick may mark the early stages of a potential recovery, though sustained momentum in
the coming months will be crucial to confirm a more durable trend.

“Looking ahead, several factors could support the sector: interest rate cuts by the ECB, planned EU-level efforts to reduce
regulatory burdens – particularly benefiting the automotive industry – and new NATO spending targets calling for defence
budgets to rise to 5% of GDP by 2035. Spain, however, has secured an exemption: as long as it can meet the required
military capabilities with fewer resources, it will not be held to the full spending target. Nonetheless, external risks remain.
U.S. trade policy and its indirect effects could weigh on Spain’s export outlook. Nevertheless, sentiment among industrial
firms has improved. The subindex for future output rose again in June and now exceeds its historical average.

“The nascent recovery in Spain’s manufacturing sector is currently being driven by a stronger order book and increased
production activity. To meet rising production needs, firms have increasingly drawn on existing inventories. However, caution
persists in the procurement of inputs, suggesting that the recovery has yet to gain sufficient breadth and depth to trigger a
broader investment cycle.

“On the pricing side, the downward trend continues. Input prices have declined, largely due to the stronger euro, which has
made imports more affordable and eased cost pressures. Should the Middle East conflict escalate further, rising oil prices
could reverse this trend and exert upward pressure on input costs. For now, falling input prices are feeding through to output
prices. Firms report declining sales prices, citing competitive pressures as a key driver.”

This article was written by Justin Low at www.forexlive.com.