Spain’s services sector is showing improvement, but demand has weakened, with new work declining for the first time in 18 months. This progress mainly comes from existing contracts, and there is still a positive outlook for the future. In June, the private sector grew slightly faster, helped by manufacturing and services, according to HCOB PMI data. However, growth is below earlier peaks from this year, and political uncertainty could be a hurdle. Despite these political tensions, service firms are becoming a bit more optimistic about the future. They don’t believe the current political climate will harm economic fundamentals or consumer demand. Demand seems to be declining as order books for new business have dropped for the first time in 18 months. Still, firms have cautiously expanded their workforce, albeit at a slower pace. A drop in outstanding work suggests a loosening labor market. Operating costs remain high, with ongoing wage pressures in the sector. Some companies have faced higher transportation costs, which could decrease if the ceasefire in the Middle East holds. In response, service providers raised prices in June, marking the fastest inflation rate of the year. Spain’s service economy is moving forward, but it’s showing clear signs of stress. There’s a noticeable gap between what firms are currently delivering and the new business coming in. Existing contracts are supporting growth, indicating that clients are still sticking to prior agreements, but there’s hesitation in placing new orders. This first decline in new work in a year and a half is significant—it signals a shift in sentiment, and right now, that signal is cautious. Recent data from the composite PMI shows modest growth in the private sector, helped by both manufacturing and services. This isn’t surprising, but the slower pace than previous highs highlights how quickly momentum can slow down. Political uncertainty could further impact this situation. The current data suggests that growth hasn’t stopped, but it’s more fragile than just a few months ago. Despite this, service firms remain surprisingly positive. They tend to focus on long-term prospects and trust in consumer resilience, believing that the economy won’t take a significant hit. However, as new orders decrease, hiring is slowing down too. Employment is still increasing, but more cautiously. Companies are adding staff only when necessary, which is typical after a long period of growth, but it emphasizes how quickly sentiment can shift when demand drops. Another important point is the decrease in backlogs. This can be seen in two ways: it may indicate progress as older work is completed, or it may suggest that capacity is no longer being pushed. When firms finish projects quicker than they gain new ones, it usually means that supply is outpacing demand, which could further loosen job conditions if it doesn’t change soon. Costs are still a concern. Wage pressures remain significant, and although some companies reported higher transport costs, these may decrease if geopolitical tensions in the Middle East ease. In the meantime, firms have raised prices, making June the month with the highest inflation rate in the sector this year. This doesn’t just impact profit margins; it also affects customer affordability and future pricing strategies. This is another important factor to monitor. For those focusing on short-term market trends, it’s essential to keep an eye on not just overall growth, but also the direction of new business and emerging pricing trends. The data is clear: momentum is slowing. Whether this leads to a broader decline depends largely on future demand and whether this cautious optimism can hold.

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