“Reality has hit home for Spain’s bloated real-estate sector,” said Fiona Maharg-Bravo on Breakingviews. Martinsa Fadesa, the biggest property developer, filed for administration this week. Spain’s Official Credit Institute, part of the government, refused it money, “sending a strong signal about how dire the market really is”.
More bankruptcies are on the cards now that the credit squeeze has hit sales and left developers short of cash. Moreover, the market is oversupplied after a building boom that saw construction account for 10% of GDP, compared to 6%-7% in the US at the height of its bubble.
Prices in the sagging housing market, having risen almost fourfold in the past decade, are set to slide by 35% in real terms by 2011, reckons Deutsche Bank. This portends further weakness in consumer spending – car sales plunged by 31% in June. “The hard landing in Spain is very similar to the one in the US,” said Jose Carlos Diez of Intermoney, but it is “happening much faster”.
Even Germany is struggling
Italy, Denmark and Spain are in, or almost in, recession, France is weakening (consumer confidence hit an all-time low in June) and now Germany, hitherto the continent’s “sturdy locomotive”, is faltering, said Mark Lander in the International Herald Tribune.
Exporters are succumbing to soaring raw material costs and the strong euro, plus the global slowdown. Exports fell by 3.2% month-on-month in May and new industrial orders have been falling for six months.
All Europe’s recent sources of growth “are in trouble”, said Michael Hume of Lehman Brothers. Far from propping up the global economy, as many had hoped, there is a 40% chance the eurozone could fall into recession this year, said Hume.