Morgan Stanley, the investment bank, has issued a major alert on the health of Spanish banks, warning that a replay of the ERM crisis in the early 1990s could wipe out the capital base of weak lenders exposed to the property crash
Spain and Ireland are set for a prolonged slowdown in economic growth, according to Standard & Poor’s, as a drop in construction activity and consumer sentiment hits labour markets and weakens public finances.In a report published on Monday, the credit rating agency says house prices in the two countries – and the UK – are about 20 per cent overvalued and on the verge of a “protracted correction”.The impact of this on the broader economy would be more pronounced in Ireland and Spain, whose “economies are heavily exposed to the direct effects of the housing market slowdown on the construction sector”, says Standard & Poor’s. Construction accounted for 12.6 per cent of the total employment in Spain in 2006, compared with a European Union average of 8.2 per cent, it says.In Spain, unemployment in the construction sector has surged 53 per cent in the past 12 months, helping to fuel a 22 per cent increase in the number of immigrants out of work. Scores of small builders and property agents in coastal areas have gone out of business, and there are concerns about rising bad loan rates at some regional savings banks. House sales in the second quarter this year were 11 per cent lower than in the first three months, according to government figures.While acknowledging the downturn, the Spanish government has consistently played down its implications for the wider economy. Officials say their main worry at the moment is the impact of a broad slowdown in Europe on the country’s export and tourism sectors.More on Warning on building slowdown
The first-time buyer crisis has been one of the major issues of the housing industry and recent events have ensured it is not about to go away. Nor, as a result, will the scapegoating.