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Spain March services PMI slips after Feb gain

Source: Reuters - Tue 5th Apr 2011

Spain's dominant services sector contracted again in March after weak growth in the previous month, suggesting activity is likely to remain fragile for some time, a key survey showed on Tuesday.

Markit's purchasing managers' index of companies providing services from trucking to banks fell to 48.7 in March, having climbed above the 50.0 level that separates growth from contraction for the first time in seven months in February.

That was below the 50.5 level forecast by economists, and showed that a solid recovery in a sector that makes up around 70% of the country's economy will take time.

Spain's economy is expected to grow weakly in each quarter this year. The country may be forced to take additional measures to slash its deficit should it not grow as much as a government estimate of 1.3% for the year as a whole.

The slowdown in the PMI came as employers increased the pace of layoffs in a country already suffering unemployment of more than 20%, the highest rate in the European Union.

The employment index fell to 46.2 in March from 47.5 in February and has now been below 50 for more than three years.

"Job cuts were again in evidence at the end of the first quarter of 2011, with service providers citing fragile customer demand in Spain," said Andrew Harker, eocnomist at data provider Markit.

"PMI data suggest that Spanish GDP growth is likely to have remained weak over the first three months of the year."

Nevertheless, Prime Minister Jose Luis Rodriguez Zapatero said last week the economy would grow more in the first quarter than it did in the final three months of 2010, when it grew 0.2% from the previous quarter.

The survey also showed rising inflationary pressures in the sector, with the input prices index rising to its highest level since September 2008. Firms were unable to pass on higher costs, with the output prices index holding well below the 50 line.

Markit reported profit margins continued to be hit.

Despite the slowdown in the main index, the pace of contraction in the new business sub-index improved, to near growth territory. Business expectations for the year ahead also picked up.

Last week a survey covering Spain's manufacturing sector reported a better outlook, as factories continued to grow on the back of improving export markets. Spain's fragile recovery remains subject to a better outlook elsewhere in Europe, as consumers at home continue to be burdened by high unemployment and high levels of debt.

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