[Economics] Tourism demand drives the economy of the service sector in April

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Several people in the taxi line at the Atocha-Almudena Grandes station, on May 2, 2023. Alicante, Valencia, Madrid and Barcelona are the cities that have received the most tourists and visitors during this May long weekend. Alberto Ortega Europa Press

Activity in the services sector in Spain returned to strong growth in April driven by strong demand, but there were no signs of weakening inflationary pressures.

The HCOB PMI purchasing managers' index of commercial activity in the Spanish services sector, prepared by S&P and Hamburg Commercial Bank, stood at 57.9 points in April, below the 59.4 in March, but far from the 50 that separate growth from contraction.

Thus, after the contraction of the manufacturing PMI in April to 49 points from 51.3 the previous month, the composite index of private sector activity in Spain in April stood at 56.3 points, compared to 58, March 2.

Employment in the service sector increased in April at the strongest rate since 2001, against a backdrop of business continuity and with the highest growth in new orders since November 2021, according to S&P Global.

The companies surveyed mention that the momentum of economic activity is maintained by the improvement in demand conditions, especially in the tourism industry and, in particular, foreign tourism.

The good performance of demand in April is reflected in the strong increase in new orders, which will increase at the fastest rate since November 2021, including the largest increase in foreign orders since 2014.

employment record
This increase in orders and pending tasks prompted service companies to increase their workforces in April for the seventh consecutive month, although they were unable to avoid the accumulation of pending orders, and there was the largest increase in employment in just over two decades.

The report notes that strong demand prevented inflationary pressures from easing, causing both buying and selling prices to accelerate in April, as buying and selling rates strengthened and remained at historically high levels.

In this sense, the companies surveyed pointed to the increase in labor costs as a key component of the last round of inflation, while they took advantage of the strong demand to raise their prices and try to improve their profitability.

One year ahead, companies in the service sector remain optimistic with the forecast of a sustained improvement in demand that will allow activity to grow. However, the report stresses that "many market watchers" will be alert to heat waves, because they are likely to have negative economic effects, "possibly also on tourism."

in good shape
"The services sector in Spain remains in good shape," says Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, in a commentary accompanying the report, highlighting the "excellent" demand situation and good data from hotel occupancy, given the "crucial" importance of tourism for the Spanish service sector.

"It should be noted that both the PMI purchase price index and the sales price index reveal higher readings," he points out, for whom this evolution contrasts with that observed in other large euro area economies such as Germany and France and suggests that the pressures inflation in Spain "continue to be significant".

Eurozone activity accelerates to 11-month highs
Spain, along with Italy, have been the most dynamic economies in the euro area last month, with the composite PMI index at 54.1 points from 53.7 the previous month, its best reading in eleven months, with Spain at Italy as the most dynamic economies. However, "Italy and Spain are currently the main driving forces behind the growth of the services sector in the euro area," de la Rubia highlighted, who partly explained the rise of the countries of the South to the greater relative weight of tourism.

 

In April, the PMI index for the euro area services sector accelerated to 56.2 points from 55 in March, registering its highest level in a year, while, on the other hand, the manufacturing PMI worsened its deterioration with a result of 45.8 points, compared to 47.3 the previous month, its worst reading in 35 months.

Among the countries analysed, Spain (56.3 points) and Italy (55.3) posted the highest composite PMI readings in April, ahead of Germany's 54.2; Ireland's 53.5 and France's 52.4.

The acceleration of the expansion of business activity in the euro zone allowed employment levels to continue increasing in April, reaching their highest levels in one year, while inflationary pressures in the region eased, with a drop in purchase prices at lows of 26 months, although the prices charged increased again, but at the weakest rate in two years.

 

Link: https://www.expansion.com/economia/2023/05/04/645370dae5fdeade4c8b45e7.html