World Economy

Spain Services Sector Growth Eases

Spain’s services industry took a hit last month during the crisis in Catalonia, dealing a blow to one of the euroarea’s best-performing economies.

IHS Markit’s monthly gauge fell the most in more than two years, dropping 2.1 points to 54.6, according to data published on Monday. While the gauge still signals growth, that’s the weakest reading since January and far below the median forecast of economists, Bloomberg reported.

Ken Wattret, an economist at TS Lombard in London, said “political hullaballoo over Catalonia has taken its toll,” and the softer services activity tallies with reports about a “sharp drop in tourist-related activity.”

With Catalonia accounting for about 20% of Spanish output, it will be crucial for the entire economy to bring the crisis to an end after more than a month of chaos.

In its report, IHS Markit said confidence among service providers fell to the lowest in more than a year and some companies have been “delaying spending decisions amid uncertainty.”

Still, Cathal Kennedy, European economist at RBC Capital Markets said the effect on the Spanish economy next year is likely to be “relatively small.” While the crisis may shave off as much as 0.2 percentage point from fourth-quarter growth, now “may mark the high point of the impact.”

Spain’s central government took direct control of Catalonia at the end of October after the regional government staged an illegal vote on secession from the rest of Spain before declaring itself independent.

“Events in Catalonia acted to dampen growth, with the impact on service providers greater than was seen for manufacturers in the sister PMI survey last week. There were reports of clients delaying spending decisions amid uncertainty, while business sentiment dropped to the lowest in over a year,” he said.

Meanwhile, the eurozone’s economy is on track for a strong finish to 2017 and firms are passing on more of their costs to consumers as pricing power increased, a survey showed on Monday.

IHS Markit’s final composite purchasing managers’ index for the eurozone fell to 56.0 in October last month from September’s 56.7, piping an earlier flash estimate of 55.9 and comfortably above the 50 mark that separates growth from contraction.

“The final euroland PMI was revised up marginally from the flash to leave eurozone growth looking healthy at the beginning of Q4,” said Cathal Kennedy at RBC Capital Markets.

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