Spain's manufacturing activity declined for the second consecutive month in March, driven by uncertainty and a decline in new orders, according to an S&P Global survey this week.

The HCOB Spain Manufacturing PMI fell to 49.5, down from 49.7 in February, remaining below the neutral 50.0 level, which signals contraction. This marks a slowdown after a year of continuous growth in the sector.

The drop in new orders, mainly driven by geopolitical tensions and tariff concerns, caused manufacturers to cut back on inventories and purchasing.

In addition, export sales also fell for the second month in a row, experiencing the steepest decline in over a year, Reuters news agency reports.

“Panellists reported increased client uncertainty following the erratic tariff announcements, leading to the postponement of deals,” according to Jonas Feldhusen, Junior Economist at Hamburg Commercial Bank.

Despite facing these challenges, both production and employment in the sector saw modest growth.

Output expanded for the seventh month in a row, though at the slowest rate of the year, while staffing levels saw a slight increase, mainly through temporary contracts.

In addition, inflationary pressures eased, with input price inflation dropping to its lowest point since last November. However, supplier delays continued, albeit less severe than in previous months.

The future of Spain's manufacturing sector remains unpredictable, with Feldhusen cautioning that significant cuts to both production and employment could occur if demand continues to decline.

Meanwhile, the Spanish government is forecasting a 2.6% expansion of the national economy this year, a growth rate that significantly outpaces most other countries in the euro area, suggesting a relatively stronger economic performance compared to its regional counterparts.