The Spanish economy is still woefully dependent on the construction sector despite a property crash now well into its second year. The latest figures from Eurostat – the EU’s statistics office – show that construction sector output (or gross value added) in Spain was 10.3% of GDP, almost double the Eurozone average of 5.8%. The figures also show that Spanish construction sector output fell by 4.3% in May, the biggest monthly fall in the Eurozone, dashing hopes of a recovery after a 3.3% rebound in April.
The construction sector has gone from 10.9% of GDP in March 2008, to 10.3% today, a piffling reduction considering the depths of the country’s residential construction slump. In the boom residential construction made up two thirds of construction activity, so you would expect an almost total collapse in residential construction to cut deep into construction output.
Analysts explain the mystery by pointing to the surge in government spending on public works construction projects to stimulate the economy and keep construction sector workers off the dole. The problem is this support is unsustainable, and will start falling off as projects are completed.
From 2006 to June last year Spain had the biggest construction sector in the EU measured by absolute value. France’s construction sector is now the biggest, but even so only accounts for 5.9% of French GDP.
Spain – The Florida of Europe
Industry experts often argue that Spain’s emergence as the ‘Florida of Europe’ justifies a bigger construction sector in Spain than the rest of Western Europe. Spain needs to build more homes to satisfy the demand of hundreds of thousands, if not millions, of northern Europeans planning to buy a holiday home or retire to Spain, goes the theory. Unfortunately, the Florida model hardly inspires confidence, at the moment at least. Florida is in the pits of a deep recession, largely thanks to its own housing bust.