The services sector in Spain registered growth in January, the fastest pace in six months, predominantly due to strength in domestic demand, leading businesses to recruit additional staff.

S&P Global's HCOB Spain Services Purchasing Managers' Index (PMI) increased to 52.1 last month from 51.5 in December. The reading has remained above the 50-mark separating growth from contraction since November 2022, with the exception of last August, Reuters news agency reports.

Spain's services sector, including the tourism industry, makes up around half of its economic output.

"Spain once again underscores its current strength among the major European economies," said Jonas Feldhusen, Junior Economist at Hamburg Commercial Bank, within the S&P report.

The country's economy grew 2.5% last year, outperforming other countries in the eurozone. Indeed, Italy grew 0.7%, France 0.9%, whilst Germany contracted 0.3%. Spain's government forecasts economic growth to decelerate to 2% in 2024.

Service providers increased their hiring, resulting in higher wage costs, adding to overall costs for the majority of businesses, the survey also revealed.

The steady growth within Spain's services sector contrasts with manufacturing activity, which has been contracting for the last 10 months.

In reference to the PMI data, Jonas Feldhusen, Junior Economist at Hamburg Commercial Bank, said: "Services companies have accelerated their hiring activities for the second consecutive month. With more people getting jobs and salaries rising, it fits the narrative of a general increase in demand. The latest GDP numbers confirm this view as private consumption has supported GDP growth in the fourth quarter.

"In line with increased demand, inflation pressure remains elevated. Input and output prices rose at a faster rate in January compared to the previous month. In the realm of input prices, there are reports of higher wages, increased employee costs and general price increases. Increased input costs are passed on to customers by companies, reflected in the official inflation data. Contrary to general expectations, Spain's inflation rate in January has increased, now standing at 3.4%," he added.

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