Insights 
VT 
Spain’s manufacturing sector experienced growth for the first time since January, as the HCOB Manufacturing PMI rose to 50.5 in May. This result surpassed expectations of 48.4 and was higher than the previous month’s figure of 48.1. Improvements in output and employment were observed, with a slower decrease in new orders. The PMI rebound may signal easing global trade tensions, and Spain’s limited reliance on the U.S. market compared to countries like Germany or Italy also contributes.
Production momentum increased, with positive trends in demand and output due to better sales conditions. Although new orders decreased, the decline was less pronounced, indicating stabilization. Companies have increased inventories of intermediate goods, anticipating further growth in production.
Price Pressures Eased
Price pressures in manufacturing eased as input costs fell due to lower raw material prices and reduced demand, leading to decreased output prices. Employment conditions in May were stable with a slight improvement, spurred by increased optimism and backlogs. Many companies anticipate an improved economic outlook, owing to the European Central Bank’s monetary easing and Germany’s fiscal support potentially benefiting the eurozone. However, U.S. trade policies introduce uncertainties that may impact global planning stability.
What this piece tells us, in essence, is that things have started to turn a corner for Spain’s manufacturing firms. For the first time in several months, activity in the sector has ticked upward, according to May’s data. The Purchasing Managers’ Index (PMI) nudged just above the demarcation line that separates contraction from expansion. At 50.5, it not only beat the expectations but improved over April’s reading, marking a notable change in direction for an industry that had been shrinking since January.
If you’re closely tracking metrics for short-term movement, the details offer more than just vague optimism. Output and employment both moved higher. Importantly, while new orders remain in decline, the pace of the drop has tapered off. This dampened contraction implies that the worst of the demand drag may be behind us. One might infer that foreign trade uncertainty has started to lose some of its bite — and Spain’s limited trading ties with the U.S. mean that it’s not as exposed to policy decisions from across the Atlantic as other European economies might be.
Companies Build Inventories
We noticed something else too: companies are building intermediate goods inventories. That’s not by accident. When firms grow their stockpiles of raw and semi-processed materials, it’s generally a bet on higher future output. They wouldn’t be stocking up unless they were reasonably confident that incoming demand is either already on the books or expected shortly. We interpret this as a calculated stance on short-run production targets—more geared towards preparation than excess.
In parallel, input prices are on the decline, helped along by cheaper raw materials and softer global demand pressures. That decline has trickled through to selling prices, which manufacturers are now lowering. For firms that rely heavily on margin analysis, this suggests a more competitive pricing environment ahead. We may begin to see businesses passing on cost savings not out of choice, but necessity.
Employment hasn’t just stood still either. While changes are modest, the movement is upwards—and that matters. It indicates HR departments are not only holding current staff but also, in some cases, adding headcount. That would only happen if order pipelines looked more secure. And indeed, backlogs are forming again, providing further confirmation that work is flowing into the system more steadily than a few months back.
Expectations among businesses are better now than at the start of the year. Much of this confidence likely links to anticipated rate cuts by the ECB, which would relieve borrowing conditions across the bloc. Plus, policy intervention out of Berlin appears to be offering some tailwind externally. That combination strengthens forward projections and gives more clarity to demand models.
That said, risks have not disappeared altogether. Regulatory shifts in the U.S. remain a wild card. Even if Spain is less exposed than peers, global planning frameworks could still feel the tremors. Certain sectors that rely on global supply chains or U.S.-denominated contracts may be forced to rethink delivery timelines or hedge more actively.
So we’re keeping our risk models tight and watching commodity flow data with slightly more attention than usual. Prices and volumes are aligning in ways that warrant recalibration, particularly if broader eurozone momentum builds off this initial move. There’s no guarantee of that, but recent figures paint a more orderly forward view than what we saw just a quarter ago.
