Manufacturing in Spain grows for 1st time since Nov '07

Spanish manufacturing in March grew for the first time since Nov. 2007 as output and new orders leapt, though concerns that demand will remain fragile for some time persist, a key survey showed on Thursday.

The data will be welcomed as a sign that Spain was finally moving out of recession in the first quarter of the year, some way behind its major euro zone neighbours which turned the corner late last year.

Markit's Spanish Manufacturing Purchasing Managers' Index rose to 51.8 in March from 49.1 in February, the first time it has been over the 50 mark separating growth from contraction since November 2007.

It was its highest mark since August 2007.

Analysts polled by Reuters had expected a rise above 50, but not by so much. The index was pulled higher predominantly by a surge in the output index to 54.9 from 49.2 the previous month, its highest level since June 2007, as well a jump in new orders above the 50 point for the first time since January 2008.

Export orders also grew for the second month running.

"The more encouraging Spanish manufacturing data for March suggest that the sector may finally be beginning to join in with the rebounds already under way across other euro zone economies," said Andrew Harker, economist at data provider Markit.

The Spanish economy contracted by 0.1 percent quarter-on-quarter in the last three months of 2009 year-on-year and 3.6 percent for the full year from a year earlier.

The government expects quarterly growth in each quarter of this year.

However, Harker cautioned that a prolonged period of positive data was needed before a recovery could be assured in Spain.

The output price index remained below the 50 line again in March for the 18th consecutive month, showing manufacturers were finding it hard to pass on the sharp rise seen in input prices after a sharp jump in fuel costs in the past month.

Harker said this was a worry for the sector.

"While sharp discounting is necessary to stimulate demand, higher raw material costs and the subsequent erosion of profit margins make this strategy ever more difficult to keep up."

The data also showed no sign of a return to growth in the sector's employment index, which was last over the 50 point mark in August 2007, even if the pace of decline eased in March. Spanish unemployment was expected to rise slowly this year to almost 20 percent. In the fourth quarter of last year it stood at 18.3 percent.