Spain’s services sector saw slower growth in August. The services PMI hit 53.2, which is below the expected 54.4 and down from July’s 55.1. The Composite PMI also fell from 54.7 to 53.7. Despite these numbers, the economy benefits from strong demand, although rising input costs from higher supplier charges point to inflation concerns.

Strong Economic Performance

Even with the slowdown in the services sector, Spain’s private sector remains stable. Manufacturing activity has increased, showing a solid economic performance compared to other Eurozone countries. While business activity growth slowed a bit, new business opportunities continued steadily, positively impacting employment and capacity. Increased business demands have sometimes led to staff shortages, driving the need for more personnel, reflected by an expanding index for nearly three years. Price inflation in the services sector remains high, with both input and output costs rising in August. Companies are increasingly passing these costs to their clients, raising worries about continued service price inflation. The slowdown in Spain’s services growth may indicate a peak in recent economic momentum. Although the sector is still growing, missed expectations combined with ongoing inflation create a complicated outlook for the coming weeks. This situation makes buying call options on the IBEX 35 potentially risky. Rising input costs are a key concern, especially since companies are successfully transferring these to customers. Recent Eurozone data for August 2025 indicated core inflation sticking at 3.2%, well above the European Central Bank’s target. Therefore, it is highly unlikely that the ECB will consider cutting rates in their next meeting. We should look for trades that benefit from sustained high-interest rates, such as options on Euribor futures.

Opportunities and Strategies

Spain’s relative strength compared to its peers presents other opportunities. While Spain’s composite PMI was a strong 53.7, Germany’s equivalent figure fell to 49.5, showing contraction. This difference supports a pair trade strategy—consider going long on IBEX 35 futures while shorting German DAX futures to take advantage of this divergence. The strong employment data, revealing staff shortages, complicates a strictly bearish outlook, suggesting economic resilience. This mixed data often leads to increased market volatility, similar to late 2023 when inflation and growth signals were unclear. Therefore, buying straddles on key Spanish banking stocks, which are sensitive to both economic growth and interest rate policies, may be a smart way to trade expected price movements around upcoming ECB announcements. Create your live VT Markets account and start trading now.

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