Spain CRISIS: Manufacturing plummets to negative territory as Brexit devastates Europe

Purchasing Managers' Index (PMI) figures, which indicate of economic health for manufacturing and service sectors, show Spain’s production fell from a positive 52.4 in January to 49.9 in February. Readings above 50 indicates an economic expansion, while a reading below 50 indicates a reduction. A higher than expected reading should be considered positive/bullish for the eurozone, while a lower than expected reading is considered negative/bearish for Europe.

The report read: “The PMI index decreased in Spain from 52.4 registered in January and was below the level of absence of changes of 50.0 for the first time since November 2013, putting an end to more than five years of continuous growth of the sector.

“Even exports do not support the order book.

"The deterioration of new orders received from foreign customers was the first in almost six years and reflected a weakening of demand in neighbouring European countries and the fall in sales to China."

Spain’s performance adds to Europe’s economic woes as the PMI confirmed powerhouses France and Germany also suffered while figures for the entire continent were also dire.

Germany’s PMI score fell to 47.6 points last month from 49.7 in January - the worst barometer value in more than six years while Italy, which tumbled into recession at the start of this year, saw its reading edge down marginally to 47.7 points from 47.8.

Growth in France barely managed to gather any pace at all, rising from 51.2 in January to 51.5 last month.

For the entire continent, eurozone manufacturing index slumped to 49.3 from 50.5.

Commenting on Spain’s PMI data, Paul Smith, economic director of IHS Markit, said: “Given that it is unlikely that the mentioned challenges will be resolved in the short term, it seems that growth inevitably will be limited in the coming months.

"February proved to be a challenging month for Spain's manufacturers.

“Undermined by a first deterioration in order books for over two-and-a-half years, latest data showed that a run of continuous growth that stretched to over five years finally came to an end.

"The slowdown in the sector is closely aligned with an increasingly challenging global manufacturing climate, especially in fellow European countries.

“Worries over Brexit and ongoing challenges in the automotive industry are weighing on demand, especially for capital goods producers who suffered particularly noticeable drops in output and new work during the month.

"With aforementioned challenges unlikely to be resolved in the near-term, it seems growth will be inevitably restricted over the coming months."

Chris Williamson, chief economist at IHS Markit, said: “The slowdown is being led by Germany and Italy, but now Spain has also fallen into contractionary territory and only modest expansions are being observed in France, Austria and the Netherlands.”

He warned the figures represent a gloomy outlook for the rest of Europe’s economies as production is likely to be scaled back even further in the near future.

Mr Williamson said: “Euro area manufacturing is in its deepest downturn for almost six years, with forward-looking indicators suggesting risks are tilted further to the downside as we move into spring.

“Most worrying is the downward trend in new orders. Orders are falling at a faster rate than output to a degree not seen for seven years, meaning production is likely to be pared back further in coming months unless demand revives.

“The new orders to inventory ratio has also fallen to its lowest since 2012, with many companies reporting excess warehouse stocks.

“In addition to widespread trade war worries, often linked to US tariffs, and concerns regarding the outlook for the global economy, companies report that heightened political uncertainty, including Brexit, is hitting demand and driving increased risk aversion.”

Additional reporting by Monika Pallenberg.

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