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Spain Service Sector Growth Tops Expectations

Spain's service sector grew at the fastest pace in over a year, surpassing economists' expectations, driven by strong domestic demand and employment growth, survey data from IHS Markit showed on Wednesday.

The purchasing managers' index, or PMI, for the services sector rose to 56.8 from 54.5 in February. Economists had forecast a score of 55.

A reading above 50 suggests growth in the sector. The latest reading was the strongest since February 2018 and the duration of the service sector expansion is now just shy of five-and-a-half years.

New orders rose the most since May 2018 despite a net reduction in export demand due to economic and political uncertainties such as Brexit. Total demand growth was driven by successful commercial and marketing strategies, the launch of new services and stronger demand.

Consequently, business confidence hit a nine-month high in March and hiring increased, extending the current trend of growth to four-and-a-half years. Backlogs decreased for the first time in 11 months as capacity expanded.

Cost burdens increased notably, thanks to increased hiring and supplier prices, but the rate of input price inflation was the lowest lowest in a year-and-a-half.

Responding to higher costs, firms raised their charges markedly, but inflation was curbed by competitive pressures.

The composite PMI that combines manufacturing and services rose to a ten-month high of 55.4 from 53.5 in February, mainly led by domestic demand. Private sector expansion was largely driven by services as manufacturing growth was the weakest in five years.

"The Spanish economy enjoyed a strong end to the first quarter of the year and the latest data are consistent with a slight acceleration of quarterly GDP growth in Q1 2019," IHS Markit Economics Director Paul Smith said.

"The sting in the tail of rising job numbers is increasing cost pressures for firms, which have been exacerbated by the recent strong uplift in the minimum wage," Smith added.

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