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Weak manufacturing and car-sales data indicate recovery may be stalling

Fitch cuts growth forecasts for Spain, citing government belt-tightening

A notable slowdown in the manufacturing sector and poor new-car-sales figures point to a further setback for Spain's still anemic recovery from its worst recession in living memory.

Activity in the manufacturing sector fell to its lowest level in over two years last month as both output and new orders suffered substantial falls, consultant Markit said Monday. At the same time car sales in the first nine months of the year were the lowest in almost two decades.

The European Commission last month estimated that GDP quarterly growth in Spain eased to 0.1 percent in the third quarter from 0.2 percent in the second quarter, down from 0.4 percent in the first three months.

Markit's Purchasing Managers index fell from 45.3 points in August to 43.7 points in September, its lowest level in 27 months. A reading of below 50 points indicates contraction and above 50 points expansion. The final manufacturing PMI index for the euro zone in the same month hit a 25-month low at 48.5 points, down from 49.0 points in August. Only Germany saw its PMI hold above the 50-point mark.

The National Association of Car and Truck Manufacturers (ANFAC) said new car registrations in September declined 1.3 percent from a year earlier to 55,572 units, the lowest figure for September in 15 years, while sales in the first nine months sank 20.7 percent to 623,936, the worst performance since 1993.

"The consequences of ongoing slow sales in the past few years is making itself felt in the Spanish automobile pool, which is approaching an average age of 10 years, one of the highest in the European Union," ANFAC said in a statement. ANFAC's general manager, Luis Valero, said that ageing cars presented a security and environmental problem.

Juan Antonio Sánchez Torres, the head of the association of car sellers, said the market would take time to return to normal levels of sales of 1.2 to 1.3 million units a year. He predicted new-car purchases for the whole of this year of 820,000 units.

Meanwhile, Markit said the pace of the decline in new-manufacturing orders was "unprecedented prior to those seen during the 2008-2009 recession." It attributed the decline in demand to a deterioration in economic conditions. Output declined for the fifth month in a row, suffering its steepest fall in 28 months. Intense competition also prevented firms passing on higher input prices to clients.

"The latest PMI data for the Spanish manufacturing sector are deeply worrying due to the extent of the declines in key variables, such as output and new orders, which are sharper than at any stage prior to the recession," Markit economist Andrew Harker said. "There is no doubt that the current contraction represents more than just a blip, with economic uncertainty in the euro zone exacerbating already weak demand in Spain itself."

Markit said that those taking part in its survey also expressed pessimism about the last quarter of the year.

That downbeat mood was extended into the next two years by Fitch on Monday. The ratings agency said it had slashed its GDP forecasts for 2012 to 0.5 percent from 1.6 percent previously and to 1.5 percent for 2013 from 1.9 percent. Those figures contrast with the government's growth estimate of 2.3 percent in both years.

One of the main reasons for the ratings agency's downgrade is the expectation that the government's austerity drive to rein in its budget deficit will continue to erode activity. "The deepening fiscal austerity will prolong the process of economic recovery," Fitch said.

Fitch also reduced its estimate for GDP growth this year to 0.6 percent from 0.7 percent. The government's official forecast remains 1.3 percent, but it has acknowledged it may fall short of that.