Spain's manufacturing sector posts solid growth in October, PMI shows

Spain's manufacturing sector expanded for the sixth consecutive month in October, with the HCOB Spain Manufacturing PMI rising to 52.1 from 51.5, primarily driven by robust domestic demand. While overall confidence improved and firms plan investments, new export orders declined for the second month due to weak demand from France and U.S. protectionism, leading to cautious employment signals. This sector performance aligns with Spain's broader economic outlook, which is projected to outperform the euro area in 2025, supported by tourism and domestic consumption, following a 0.6% Q3 GDP expansion.

Analysis

Spain's manufacturing sector demonstrated robust expansion in October, with the HCOB Manufacturing PMI rising to 52.1 from 51.5 in September, marking the sixth consecutive month of growth. This uptick was primarily fueled by strong domestic demand, indicating resilience within the national economy. Confidence in the sector also improved, with firms planning future investments and production enhancements.

Despite the headline growth, underlying strains are evident as new export orders declined for the second consecutive month, falling at their fastest rate in five months. This weakness is attributed to reduced demand from France, possibly due to political instability, and protectionist measures from the United States. Furthermore, employment signals turned cautious, with a marginal decline in headcount, reflecting external uncertainties.

The manufacturing sector's performance aligns with Spain's broader economic trajectory, which is projected to outperform the euro area in 2025, supported by a tourism boom, a strong labor market, and domestic consumption. The government recently raised its full-year growth forecast to 2.7% from 2.6%, despite a slightly milder Q3 GDP expansion of 0.6% compared to 0.8% in the prior quarter, with annual growth at 2.8%.

Key Decisions for Investors

• Investors should monitor Spain's domestic consumption and tourism sector for continued economic resilience, given their role in offsetting export weaknesses.
• Evaluate exposure to Spanish exporters, as declining new export orders due to geopolitical factors and protectionism pose a downside risk to externally-oriented companies.
• Assess labor market trends for signs of sustained caution or recovery, as current marginal declines could impact consumer confidence and long-term growth prospects.