The State of Construction In Spain And The Hurdles Ahead

Even though S&P Global Market Insights has moved past the prospect of Spain going through a shallow recession across the fourth quarter of last year and the first quarter of 2023, the expenditure breakdown for the fourth quarter looked grim.

It is expected by the market intelligence analysts that weak activity will spill into early 2023 because of the adverse results of still-persistently high inflation, rising borrowing costs, and pretty lacklustre demand across significant export markets.

The economy is likely to endure a very slight contraction in the first quarter. It is estimated that households are going to face a continued squeeze when it comes to their real wages as well as disposable income into early 2023. Moreover, the monetary policy of the region is playing catch-up as far as runway inflation is concerned.

 The real overall construction growth in Spain is more likely than not to moderate from an anticipated 3.5% in 2022 to 2.5% in 2023 since weak economic activity, tight financial conditions, and also continuous cost pressures put stress on the sector.

Nevertheless, it is expected that Spain will perform better than most of its European counterparts, as it happens to be the second largest receiver when it comes to receiving EU recovery funds.

This should for sure elevate the spending growth to 3.7% in 2024. It is expected that Spain’s National Recovery and Resilience Plan is most likely to get 69.5 billion euros in grants so as to support 102 reforms as well as 112 investments between 2021 and 2026.

Thus far, the EU has disbursed almost 31 billion euros under the said plan. That said, concerns still remain over the nation’s weak absorption capacities.

After growing by an anticipated 3.3% last year, the residential construction expenditure in Spain is expected to rise by a meagre 1.5% in 2023. Demand when it comes to housing is most likely to be hampered by low real household incomes and interest rates that are high. These are set to elevate the cost of mortgage debt for existing borrowers on rates that are variable and also deter potential homebuyers.

It is well to be noted that the construction cost index when it comes to residential buildings has experienced a double-digit yearly increase every month since June 2021, and though the inflation rate did manage to ease in the final two months of last year, it did remain bloated as compared to what was seen in the pre-pandemic era, as per Eurostat data.

Lingering cost pressures combined with high financial costs are expected to curtail development activity.