Spanish economy in severe slowdown due to property market slump

The Spanish economy is continued to lose steam in the second quarter of the year, and is now going through a “severe slowdown” says the latest report from the Bank of Spain.

The Bank forecasts that economic growth will fall below the 2.7% of the first quarter, down from 4% a year ago.

Meanwhile, the OECD, a Paris-based club of rich economies, has slashed its forecast for Spain’s economic growth in 2008 to 1.6%, and to just 1.1% in 2009. Only in December the OECD was forecasting 2.5% for 2008 and 2.4% in 2009, showing how the speed of Spain’s economic deterioration is leaving the experts to play catch up.



One thought on “Spanish economy in severe slowdown due to property market slump”

  1. tom.lavin

    Spain is no longer an attractive destination for holidays or for home ownership the following reasons-

    1-Spain is no longer a cheap country to visit as a holidaymaker because of the poor exchange rate between the pound and the Euro. Visitor numbers will shortly begin to fall because it is as expensive as the UK.

    2-Property prices are falling sharply in the UK and it is much more difficult to obtain a mortgage so the only people who will be able to afford the purchase of a Spanish property are people who have the cash saved up themselves.

    3-Spanish property is overpriced by at least 40% from the perspective of the UK purchaser for 2 reasons. First of all the pound euro exchange rate means that the prices of properties have increased by 18% due to that factor alone and there would have to be an 18% reduction in the asking price of any property in Spain to bring prices back to what they were year ago. And leaving aside exchange-rate effects Spanish property is widely considered by potential UK investors to be significantly overpriced in that there is a much higher probability that the price of any property acquired will fall significantly in value over the next five to 10 years rather than rise in value. Perceptions are what matter in the property market so to protect themselves against the probability of a significant fall in value a UK purchaser would want at least 25% off the asking price after 18% is deducted in relation to the exchange rate factor. That is a reduction of 43%. Of course a Spanish property owner does not have to sell to a Sterling purchaser and instead can restrict his pool of purchasers to buyers from the Euro zone. However Sterling purchasers have made up the bulk of the buyers into the Spanish market over the past few years. If you ignore them you are ignoring at least 50% of your potential purchasers.

    4. Because of the credit squeeze in the UK even if Spanish prices were reduced by 43% they will be few takers from the UK would be purchasers being restricted to individuals who have the cash available. The purchase of a Spanish holiday home in order then rent to UK holidaymakers has also been damaged by the high cost of holidaying in Spain.

    5- In other words Spain has shot itself in the foot . The problem will be long lasting until there is a readjustment of the pound/ euro exchange rate and a significant reduction ie at least 25% in the asking price of property for sale.

    6- Businesses in Spain have not taken on board the high cost of holidaying by UK visitors due to the very poor exchange rate which of course Spain can do nothing about because it is controlled by the European Central Bank. Instead they are continuing to increase prices year by believing that the pocket of the UK visitor is limitless.

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