The recovery of Spain's manufacturing sector continued for the fifth straight month in July and the rate of growth gained pace slightly from the previous month, a survey showed on Monday.

Markit's Purchasing Managers Index for manufacturing rose to 51.6 in July from 51.2 in June although a Reuters survey had forecast a slight weakening.
Factory output also grew for the fifth consecutive month, rising to 53.8 in July from 52.2 in June, though Markit called the improvement modest on the back of a tentative recovery.

"The Spanish manufacturing sector rebound failed to convince again in July, despite strengthening output growth," said Markit economist Andrew Harker.

Spain's economy registered quarterly growth for the first time for two years in the January to March period, though many economists believe the absence of stimulus spending coupled with austerity measures will prompt a new recession by year-end.

Particularly hard hit has been Spain's workforce, with unemployment the highest in the euro zone in the first quarter, and Markit saw little sign of improvement, with those polled cutting jobs for the 35th straight month in July.

"The modest rates of expansion in new business remain insufficient to lead to staff hiring given the substantial falls in workloads that were seen during the downturn," Harker said.

State spending cuts, which have sliced an average of 5 percent from public workers' wages, frozen pensions, cut some welfare payouts and hiked value-added tax rates, have hit consumer confidence and left Spaniards reining in spending.

"A worrying development from the survey over recent months is the particular weakness of the consumer goods sector, with fragile consumer demand preventing the sector from joining in the wider return to growth in Spanish manufacturing," Harker said.

In other sections of the survey, Markit noted that output prices had declined in July after two months of growth, with those polled citing intense competition and demand failing to meet supply.

A two percentage point hike in value-added tax from July 1 had pushed up output prices, according to many of those surveyed, Markit said. (Reporting by Paul Day; editing by Stephen Nisbet).

Source: Reuters.com