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Spanish economic growth will contract to 1.5 percent in 2008, less than half the rate expected this year, due to the end of the country’s real estate boom and a prolonged slowdown in the construction industry, analysts with German bank Commerzbank have warned.
“The end of the real estate boom, the rise in interest rates and the strength of the euro” will all constrain growth next year, the bank said in a research note. It noted that property prices stagnated in Spain in the second quarter compared to the first and that the number of construction permits issued in the first four months of the year fell by 20 percent from the same period of 2006.
The slowdown in the construction and real estate sectors is likely to directly impact consumer spending and could lead to rising unemployment, the Commerzbank analysts warned. That in turn will continue to cool demand for real estate.
“The trio consisting of the end of the housing boom, higher interest rates and the stronger euro will together put a firm brake on Spain’s economy. We now envisage no more than 1.5 percent growth in 2008, compared with roughly 3.5 percent this year,” Commerzbank said.
Debt defaults rise
A further expected hike in interest rates before the end of the year is likely to further sour consumer sentiment given the high debt levels of Spanish families. According to figures released this week by the Bank of Spain, Spaniards already began to feel the pinch from higher interest rates last year, when the value of unpaid loans increased by 30 percent.
Commerzbank’s forecast for 1.5 percent growth next year compares with the Spanish government’s prediction of 3.3 percent growth, down from an expected 3.8 percent this year.
The predictions come amid signs that Spanish homes are selling at a much slower pace than they were a year ago and increasing numbers of sellers are being forced to drop prices. A third of home sellers in Madrid and Barcelona, for example, have lowered their asking price by an average of 5 percent between April and June, according to a study of house prices in Spain’s two largest cities by real estate web portal Idealista.com. 34.8 percent of properties on sale in Barcelona were cut in price by 5.9 percent, while 32.9 percent of those on sale in Madrid were reduced in price by 4.8 percent.
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