Spain's Manufacturing Revival: Navigating Domestic Strength and Export Risks in 2025

The Spanish manufacturing sector has staged a notable rebound in early 2025, with the Manufacturing PMI rising to 51.4 in June—its highest level this year and a clear sign of stabilization after months of contraction. This recovery, however, is uneven: domestic demand shows resilience, while export orders remain vulnerable to U.S. tariff policies and geopolitical headwinds. For investors, the challenge lies in capitalizing on sectors tied to local demand while hedging against risks in global-facing industries. Below, we dissect the opportunities and pitfalls, and outline a strategy to navigate this divided landscape.

Domestic Demand: A Pillar of Resilience

Spain's manufacturing recovery is being driven by domestic orders, which stabilized after three consecutive monthly declines. While new domestic orders remain below pre-crisis levels, the May 2025 PMI showed the smallest drop in four months, signaling underlying demand resilience. This stability is critical for sectors like consumer goods (e.g., food packaging, household appliances) and construction materials (e.g., cement, steel), which rely heavily on local markets.

Key Sectors to Watch:
1. Consumer Staples: Companies like Nestlé España or local food producers benefit from stable domestic consumption.
2. Construction Materials: Firms such as Cemex Spain or Ferrovial may gain from infrastructure spending and urbanization trends.

This comparison highlights how domestic demand has outperformed exports since late 2024, offering a safer growth trajectory for investors.

Export Risks: Tariffs and Geopolitical Uncertainties

While domestic demand holds up, export-reliant sectors face headwinds. New export orders fell for the second consecutive month in June, dragged down by U.S. tariff policies and European market instability. Industries like automotive (e.g., Seat or suppliers like Ficosa) and tech components (e.g., Telefónica's infrastructure division) are particularly exposed.

This data underscores how U.S. tariffs have disrupted Spain's export-heavy sectors, which account for ~35% of manufacturing output.

Sectors to Approach with Caution:
- Automotive Supply Chains: Vulnerable to U.S. tariffs on European vehicles.
- Chemical and Machinery Exports: Faces supply chain delays and demand volatility in key markets.

Investment Strategies: Balancing Growth and Risk

1. Prioritize Domestic-Driven Sectors

Invest in companies with low export exposure and strong ties to Spain's domestic economy. Examples include:
- ACS (Construction/Infrastructure): Benefits from government-funded projects.
- Melinis (Consumer Goods): A regional leader in food packaging.

2. Hedge with Innovation-Driven Firms

Focus on companies investing in sustainability or digitalization, which can mitigate supply chain risks and improve competitiveness. For instance:
- Gamesa (Renewable Energy): Leverages Spain's green energy transition.
- Indra (Tech Solutions): Develops AI-driven manufacturing tools for local industries.

3. Monitor Geopolitical Catalysts

Track U.S.-EU trade negotiations and Spain's industrial policy. A breakthrough on tariffs could boost export sectors, while new subsidies for domestic manufacturing (e.g., Spain's Next Generation EU Funds) could unlock growth.

Conclusion: A Two-Pronged Approach

Spain's manufacturing revival offers opportunities in domestic-facing industries that are insulated from global trade disputes. Investors should prioritize companies with stable local demand, while maintaining a defensive stance toward export-reliant firms until trade uncertainties ease. Combining exposure to innovation-driven sectors with active risk management—such as hedging against currency fluctuations or geopolitical shocks—can position portfolios to capture upside while avoiding pitfalls.

In this divided landscape, the key is to double down on resilience and innovate to outmaneuver risk. The Spanish manufacturing sector's recovery is far from uniform, but with the right strategy, investors can turn its mixed signals into solid returns.

Disclaimer: Past performance does not guarantee future results. Investors should conduct their own due diligence and consider their risk tolerance before making decisions.