Factory activity in Spain contracted in January for a tenth consecutive month though at a slower pace than in previous months, a survey showed on Thursday.

The HCOB Purchasing Managers' Index (PMI) for Spanish manufacturing compiled by S&P Global stood at 49.2 in January, above the 46.2 reported in December and the highest reading since March. The 50 mark separates growth from contraction.

Output, new orders, employment and stocks all fell at a slower pace than in recent months but supply chain disruptions caused by the Red Sea crisis were casting a shadow over the industry, the S&P report said.

"Against the backdrop of a subdued business climate, manufacturers understandably remained circumspect when it came to purchasing and employment decisions, with both again declining at the start of the year," the report said.

Weak demand led to deflationary pressure on both raw materials and manufactured goods.

Despite the manufacturing sector's extended weakness, Spain's gross domestic product expanded by a faster than expected 0.6% in the fourth quarter of 2023.

Spain's economy expanded 2.5% in 2023, outperforming its euro zone peers. Italy and France grew 0.7% and 0.9% respectively, while Germany contracted 0.3%.

The government expects economic growth to slow to a still solid 2% this year. (Reporting by Inti Landauro; editing by Christina Fincher)