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Prior 57.1The good news is that Spain’s services sector continues to maintain growth conditions to start the year. However, there is a notable downshift with the reading here well missing on estimates. Sluggish demand was to blame with an easing of new business growth, the weakest since June last year.That aside, employment growth remains positive and business confidence also continues to pick up. The latter is seen improving to a ten-month high in fact. The slight downside is that input cost pressures remained a concern for firms in January, with latest data showing another month of elevated input price
inflation.HCOB notes that:“The latest HCOB PMIs indicate that growth momentum in Spain’s private sector eased somewhat at the start of the year,
with both the services sector and manufacturing contributing to the slowdown. This cooling follows an exceptionally strong
final quarter of 2025, when GDP expanded by 0.8% quarter‑on‑quarter. Given the diminishing underlying impulses, such a
rapid pace of expansion is unlikely to be sustained throughout 2026.
Growth of business activity in Spain’s services sector softened at the beginning of the year, albeit from a high level. While
this points to a normalization of growth dynamics, the sector’s overall expansion remains robust. However, new orders data
reveal a moderation in demand momentum, with foreign orders in particular declining, especially from key euro area
partners, whose weaker economic performance is increasingly reflected in Spanish export demand.
Despite the slowdown in January, firms remain confident about the business outlook for the year ahead. This optimism is
also mirrored in hiring intentions: companies anticipate a higher workload and continued growth and are therefore seeking to
expand capacity. Yet this comes with a cost. Input price inflation in the services sector – driven largely by labour costs – have
stabilised at elevated levels following the inflationary surge in 2022. Wage pressures therefore remain a challenge, both from
a corporate profitability and a price‑stability perspective.”
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
Spain’s services sector growth is stalling, and here’s why that matters for traders: The latest reading of 57.1 indicates growth, but it’s significantly below expectations, signaling potential weakness in consumer demand. This could impact the euro, especially if the trend continues, as sluggish demand often leads to tighter monetary policy from the ECB. Traders should keep an eye on related assets like EUR/USD, which could see volatility if the euro weakens further. If the services sector doesn’t pick up, we might see a shift in market sentiment, pushing traders to reassess their positions. Watch for any updates on new business growth—if it continues to decline, it could trigger a sell-off in the euro. On the flip side, if the services sector rebounds, it could provide a buying opportunity. But right now, the risk is tilted towards further downside. Keep an eye on the 56.0 level in EUR/USD; a break below could signal a more significant downturn.
📮 Takeaway
Monitor the 56.0 level in EUR/USD closely; a break below could indicate further euro weakness amid slowing services sector growth.
