Spain Sept services PMI falls to lowest since November 2011

Reuters

Spain's services sector contracted at its fastest rate in nearly a year in September as new business tumbled, a survey showed on Wednesday, likely keeping the economy mired in recession in the third quarter.

The Purchasing Managers Index for the services sector, which covers hotels to banks, fell to 40.2 from 44.0 in August.

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That was its lowest level since last November and well below forecasts for a dip to 42.5. It also leaves the index even further below the 50 mark that separates growth from contraction.

Spain's economy slid back into recession at the end of last year and is not expected to grow again until next year or possibly 2014 as the government makes drastic cuts to reduce its public deficit.

"Taken alongside the manufacturing PMI data, the latest survey suggests that Spanish GDP looks set to have fallen for yet another quarter in Q3, with little prospect of improvement apparent in the near future," said Andrew Harker, economist at data provider Markit.

Last week Economy Minister Luis de Guindos forecast the economy would contract by about 0.4 percent in the third quarter on a quarterly basis, matching the rate of contraction seen in the second quarter.

Harker said a rise in value-added tax to 21 percent from 18 percent that took effect on September 1 added another hurdle for companies as they were less able to offer the sort of discounts required to support new business intakes.

Indeed, the new business index fell to 40.2 from 43.3 the previous month, hitting its lowest level since last October.

In tough circumstances employers continued to lay more staff off. The employment index held well below the 50 mark, where it has held since March 2008.

Spain's official unemployment rate is not expected to dip below 24 percent this year or next year, according to government forecasts, as the recession drags on.

(Reporting by Nigel Davies; Editing by Hugh Lawson)