Spanish service sector stabilises in May as sales return to growth, PMI shows

MADRID, June 3 (Reuters) - Spain's service sector activity stabilised in May as activity and sales returned to growth after April's decline, a business survey showed on Wednesday.

The S&P Global Purchasing Managers Index for the services sector rose to 50.1 in May from 47.9 in April, creeping back above the 50 mark separating growth from contraction.

"Some stability in demand and activity following April's contractions were a welcome development in May and provide hope that the economic downturn in Spain will be relatively shallow," said Paul Smith, economics director at S&P Global Market Intelligence.

However, underlying performance remained weak, Smith warned, with the private service sector still on course for its worst quarter in more than five years.

New business returned to growth, supporting the slight rise in activity, but new export work fell for a fifth straight month as firms reported demand instability and uncertainty linked to the Middle East conflict.

Employment rose for a 44th consecutive month and the pace strengthened from April, with firms hiring on both permanent and temporary contracts. Greater capacity helped companies reduce outstanding business for the first time in three months, with backlogs falling at the sharpest rate since August 2023.

Input prices rose at a historically high pace and accelerated from April, driven mainly by fuel and energy costs, while output price inflation eased to a three-month low.

The outlook improved to a three-month high but stayed below average, with firms citing geopolitical uncertainty.

The Spain composite PMI rose to 50.2 from 48.7, signalling a marginal increase in overall private sector output, S&P Global said.

(Reporting by David Latona; Editing by Hugh Lawson)