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Spain manufacturing growth slightly quicker in Feb

Source: Reuters - Tue 1st Mar 2011

Spain's manufacturing sector grew at its fastest clip in 10 months in February helped by stronger export demand, a survey showed on Tuesday, but higher input costs and unemployment indicated a full recovery would be slow. Input costs rose at the fastest pace in at least 13 years while employers cut jobs at the quickest pace in 12 months, adding to Spanish unemployment which is the highest in the European Union at over 20%.

Markit's purchasing managers' survey for manufacturing rose slightly to 52.1 in February from 52.0 in January, the fifth straight month the index has held above the 50 mark separating growth from contraction after shrinking in September.

The main index was boosted by output growth and stronger export demand, good news for Spain's struggling economy which has been stagnant since it inched out of recession at the beginning of last year.

The economy needs to pick up to boost revenues and reduce the country's high debt burden and help Spain avoid becoming the biggest euro zone economy to require an international bailout.

The PMI's output index rose to 54.3 from 52.1 in January, its strongest rise in six months lifted by higher demand, mostly from export markets, though Markit noted signs of spare capacity as work backlogs and employment fell.

"The recovery in the Spanish manufacturing sector failed to convince again in February as new order and production growth were accompanied by signs of a deterioration in labour market conditions," economist at Markit Andrew Harker said.

The government does not expect the struggling economy to begin to create net jobs before the end of the year.

Manufacturers cut staffing levels at the fastest pace for 12 months in February as part of attempts to lower excess capacity, Markit said.

Spain's economy, boosted for over a decade by strong growth in property building and domestic demand, fuelled by cheap loans, fell into recession in mid-2008 after the global financial crisis turned off the credit tap.

Gross domestic product shrank 0.1% in 2010 and is expected to remain weak through 2011, propped up only by relatively strong exports as growth resumes in Spain's main trading partners in the euro zone.

Rising prices on the back of higher energy and raw material costs will add to companies' woes this year as they fight to remain competitive for their cash-strapped customers.

Input cost inflation rose in February at the fastest rate since the PMI survey was launched in February 1998, Markit said.

"Firms are now being forced to raise charges in response to unprecedented input cost inflation, but are still restricted by subdued domestic demand. The weakness of domestic spending is further highlighted by another decline in consumer goods production," Harker said.

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