Madrid/Palma.—The service sector contracted at the slowest pace since June 2011 in January, though companies axed more staff as they struggle to eke out growth amid a slump in domestic demand, a survey showed yesterday.

Markit's Purchasing Managers' Index (PMI) of service companies stood at 47.0 in January, up from 44.3 in December, and marking the 19 straight month the index was below the 50 line separating growth from contraction.

Spain's economy sank into its second recession in two years at the end of 2011 and is expected to keep contracting until late 2013 with little sign of a sustainable return to growth in either the battered services or manufacturing sectors.

Job cuts “While there is an air of positivity in the latest services PMI numbers, it must be remembered that activity and new orders both continued to fall solidly during the month and there was no let-up in the rate of job cuts,” said an economist at Markit Andrew Harker.

The service sector, including public services not covered in the survey, accounts for more than 60 percent of the Spanish gross domestic product.
The sector has been badly damaged as recession-weary Spaniards afraid for their jobs rein in spending on holidays and restaurants.
Workers have been especially hard hit by the downturn, with the January employment index marking 42.0, down from 44.6 in December, its sharpest contraction in activity since January 2012 and the 59th straight month below 50. Almost 30 percent of those polled cut staff levels in January, Markit said, due to reduced workloads and in an effort to cut costs.

And little economic improvement is expected this year with consumer confidence at an all time low.
Record high
Spain's unemployment rate hit a record high of 26 percent in the fourth quarter, while the number of registered jobless rose 2.7 percent in January, according to Labour Ministry figures on Monday.