Spain's services sector continued to expand strongly in September, with the pace of business activity matching its fastest level in nearly three and a half years.

S&P Global data showed that Spain's September services PMI rose to 58.3 from 57.8 in August, while the third-quarter average recorded its best performance in five years.

Growth was spread across multiple service industries, with consumer services, business and professional services, and financial and real estate activities performing particularly strongly.

Firms generally said that rising new business, higher client inquiries, and strengthening market demand together drove the expansion in business activity.

On the domestic demand front, Spain's services sector remained highly resilient. New orders continued to grow, prompting further increases in hiring.

Services employment expanded for the 48th consecutive month in September, with firms citing rising new business as the main reason for continued recruitment.

At the same time, backlogs of work rose for the fourth straight month, indicating that current demand still exceeds the immediate processing capacity of some firms and providing some support for future services activity.

However, external demand began to show signs of weakening. New export business in services fell in September for the first time since May.

Some firms said that uncertainty stemming from the Middle East war and AI-related spending squeezing other investment budgets were weighing on broader business investment demand.

This external uncertainty also began to affect business sentiment. Services business confidence fell to a four-month low in September, with firms mainly concerned about global conflicts and competitive pressures.

Meanwhile, cost-side pressures clearly re-emerged. Affected by rising global energy prices, the pace of input cost growth for service firms rose to a six-month high.

Firms also widely reported that wages, labor, and supplier fees continued to rise. Service providers continued to pass on part of these costs to clients, with the pace of charge price increases accelerating to its fastest since April in September.

This means that while Spain's services growth remains strong, price pressures are strengthening in tandem.

In terms of overall economic activity, Spain's September composite PMI rose to 56.8 from 55.8 in August, the highest since December 2024.

Services remained the main source of economic expansion, while manufacturing output also returned to modest growth.

Therefore, the core feature reflected in the September data is that Spain's domestic demand and services sector remain clearly stronger than most major European economies, but this strong growth is accompanied by new cost pressures.

On the one hand, orders, employment, and business activity all maintained rapid growth; on the other hand, rising energy prices, higher wage costs, and faster corporate price increases mean that services inflation pressure may once again become a variable requiring attention going forward.

Overall, Spain's third-quarter economic momentum remained strong, with services continuing to serve as the main growth engine, but weakening external demand and rising costs have become the two most obvious risk points in this round of expansion.