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Spain’s March manufacturing PMI registered at 49.5, slightly lower than the expected 49.9 and down from 49.7. The decline in new orders led to a marginal contraction in the sector, despite an increase in output and improved employment levels.
The PMI’s decrease resulted from reduced order volumes and inventory levels. Client uncertainty, exacerbated by erratic tariff announcements, has caused postponed deals, negatively impacting purchasing and inventories and affecting the overall business outlook.
Production Shows Modest Strength
Positive indicators include continued production growth and slight staff increases. If subdued demand persists, cuts in production and employment may occur, reflecting trends in other European countries.
Price levels in manufacturing remained stable, with slight inflation in input and output prices. Metals drove the input cost inflation, but competition and weaker demand limited pricing power.
Results across manufacturing sub-sectors varied. The consumer goods sector showed improvement, while the intermediate and investment goods sectors faced challenges, particularly the latter, which has deteriorated for three months. This downturn may be linked to the impact of Europe’s automotive crisis on Spain’s economy.
This data tells us that Spain’s manufacturing sector is still on the back foot, with contracting new business volumes dragging the overall figure down. A PMI (Purchasing Managers’ Index) reading below 50 implies that activity is shrinking rather than expanding. And while the move from 49.7 to 49.5 might seem small at first glance, it reflects a wider soft trend in demand—and that’s where our focus turns next.
Broader Demand Weakness Continues
What we’re seeing here is that clients aren’t ordering as much, and this hesitation is trickling through the entire system. Ongoing uncertainty—especially from sudden tariff shifts—is leading to decision-making delays. Businesses appear reluctant to commit without clearer signals, which has forced many manufacturers to reduce their purchasing activities. When coupled with lower inventory levels, that contraction tells us firms are responding to the slow pace by limiting exposure, not planning for growth.
However, it’s not entirely bad news. There are still visible green shoots. Output continues to edge higher, and companies did add a few more workers. That trend could provide some balance in the short term, though if new orders don’t recover, the incentive to keep headcounts stable might fade fairly quickly. Similar patterns have already appeared across other European manufacturing markets—we’ve mirrored that behaviour in the past when outside demand softens.
Prices tell another part of the story. Cost pressures have returned, albeit modestly, mostly led by a rise in metals prices. Yet despite this, manufacturers haven’t been able to pass these increases on in a meaningful way. Competition is strong, and that—combined with buyers reining in spending—has likely left little room for charging more. Margins are being squeezed between rising input costs and suppressed output pricing.
When looking at sector performance, it’s clear not all are moving in the same direction. Consumer goods showed signs of health, but investment goods—used to produce other goods—are under strain. For the latter, this is the third straight month of weakening demand, a concerning sign that manufacturers aren’t investing in new equipment, which usually reflects how confident they are in forward orders. A lot of this likely stems from recent trouble in the European car industry—Spain’s manufacturing is tightly linked to that space, particularly in supplying vehicle components.
From this we can take away a few things. Underlying demand conditions remain tepid at best. Until stability returns to input prices and buyers regain confidence to place new orders with consistency, the sector may struggle to regain momentum. With employment still on a knife edge and inventory management leaning defensive, we’re preparing for the possibility that output may follow orders lower if nothing material changes in the near term.
In terms of preparation, keeping a close eye on input costs—especially metals—and staying alert for tariff developments will be important. The divergence across sub-sectors suggests monitoring consumer-side trends separately from capital goods has value. Signals from broader investment spending, particularly within Spain’s key export-linked industries, could offer early clues for how the demand picture might evolve.
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