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Spain services growth weakens in July

Source: Reuters - Wed 4th Aug 2010

Spain's services sector expanded at its slowest pace for three months in July, dampening hopes of an upsurge in growth as companies continued to lay off staff and cut prices in response to subdued demand, a survey showed on Wednesday.

Markit's Purchasing Managers Index of companies ranging from banks to hotels fell in July to 51.3 from 51.8 a month earlier, the second straight month of declines but still above the 50 mark that divides growth from contraction.

The new business segment returned to tentative growth after shrinking in June.

"July PMI data continue the recent trend that suggests a lack of momentum in the Spanish service sector, with the hoped-for recovery in the sector this year yet to fully establish itself," said economist at Markit, Andrew Harker. July's figure was just below estimates in a Reuters poll of 51.5.

Spain's economy limped out of an 18-month recession in the first quarter but the euro zone debt crisis and wide-ranging austerity measures have dampened growth prospects and some observers are betting on a new dip before year-end.

According to the Markit poll, new business began to grow again in July after contracting in June, rising to 50.4 from 47.5, reflecting an improvement in demand though at a lower rate than seen during the previous phase of expansion from March to May.

Employment in the service sector continued to suffer in July, with companies reporting layoffs for the 29th straight month.

Unemployment rose slightly to over 20 percent in the second quarter, marking 12 straight quarters of rising joblessness, according to data by the National Statistics Institute.

"Weak consumer demand pervades the economy and continues to lead to job cuts and heavy price discounting" Harker said.

Output prices continued a two-year period of falls, dropping at the fastest rate since March, with those surveyed saying prices were cut in response to pressure from both clients and competitors.

Greater price competition helped cancel out the effect of a 2 percentage point increase in value-added tax introduced on July 1 by a government looking for new ways to rein in a huge public deficit.

Costs increased, though at a slower pace than average, with some polled blaming the VAT hike and others pointing to higher fuel prices.

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