June 13, 2008 / 12:11 AM / 9 years ago

As Spain goes for broke, brickmakers fold

<p>Workers rest at a construction site in Coslada, on the outskirts of Madrid, April 3, 2008. REUTERS/Sergio Perez</p>

LA SAGRA, Spain (Reuters) - A billion unsold bricks -- 3 months of production -- surround factories in La Sagra, Spain’s biggest brick and tile manufacturing region, since the construction sector collapsed after a decade-long boom.

In nearby towns such as Alameda, the wind blows through the skeletons of half-built apartment blocks, abandoned by building firms that have run out of cash and credit. Up to a million new Spanish homes stand empty after years of overbuilding.

Few places better depict the escalating economic crisis in Spain -- the developed country that the International Monetary Fund says will be hardest hit by the global credit crunch.

“The Spanish economy is in for a ferocious fall,” said economics professor Antoni Espasa at Madrid’s Carlos III University. “It’s going to suffer more than Europe and take longer to recover.”

Europe will feel the impact, economists say: Spain drove as much economic growth as Germany or France last year, according to Madrid’s AFI consultancy, and created over a third of European Union jobs between 2004 and 2007.

Big banks and construction firms like Santander and Acciona long ago diversified beyond domestic housing and today make much of their income abroad.

But smaller banks and firms stayed at home, and Spain’s Socialist government continued to forecast high growth until after its March election victory. Up to last year, Spain financed and built more homes than Germany, Italy and the United Kingdom combined, making it more dependent on housing than any Western country bar Ireland.

Sprawled across the plains 40 miles south of Madrid, La Sagra’s brickworks and builders are going bust as credit-starved banks cut off lending and Spaniards stop buying homes.

Brickmaker Felipe Greciano stands at the gates of his silent factory, visibly shaken after his family firm fell into a loss and he was forced to fire two dozen employees he had worked with for most of his adult life.

Greciano shut the Los Apares brickworks in Cobeja because construction firms across Spain are freezing projects.

“We are in a psychological crisis,” said Greciano as he helped workers cover up machinery and stack the last batches of red bricks to come off the production line.

“You know how Spaniards are, when there is a crisis people just freeze.”

CONTAGION

Spain was one of Europe’s star economies until last year thanks partly to house construction, now forecast to fall 70 percent this year and throw a million people out of work by the end of 2009, according to the sector’s biggest industry group.

The world’s eighth largest economy has been hit simultaneously by the end of a housing boom, the global credit crunch, soaring oil prices and a record strong euro. Its problems are spreading as unemployment and inflation rise faster than anywhere in the euro zone, prompting truckers to stage a national strike.

Adding to Spain’s suffering are expectations the European Central Bank will raise interest rates in July -- mortgage borrowing costs are already at a record 5.4 percent.

Spanish Prime Minister Jose Luis Rodriguez Zapatero forecasts an economic recovery next year as house supply falls closer to demand, and sees growth back near 3 percent by 2010.

But the International Monetary Fund and OECD fear years of stagnation as Spain transforms its low-productivity economy.

Spain’s high borrowing has saddled it with a current account deficit that at 106 billion euros last year was the world’s second-largest in absolute terms after the United States.

That is the most obvious sign Spain has relied on cheap euro-zone credit and low-skill employment -- rather than economic competitiveness -- to drive growth, says economist Rafael Pampillon, head of economics at Madrid’s Instituto de Empresa business school.

“We are not shifting to high-skill industries where we can compete, we are in an economic crisis where unemployment is rising,” said Pampillon.

HUNG OUT TO DRY

There is anger in La Sagra at Zapatero’s bullish forecasts and refusal to provide emergency credit to the wider construction sector which drives a fifth of Spanish growth -- more than twice the average rate in euro zone countries.

“Zapatero has hung us out to dry,” said Alameda building contractor Luis Ruiz, as tattered flags flapped over the sales cabin of a deserted job site.

Re-elected in March, Zapatero says a 10 billion euro ($15.6 billion) economic stimulus package funded by the budget surplus, structural reforms and infrastructure spending will prevent recession and spark recovery next year.

He sees Spain substituting construction work with new jobs in value-added service and manufacturing sectors.

Brickyard owners say Zapatero is dreaming if he thinks Spain can transform its construction-heavy economy without first suffering prolonged weak growth and high unemployment.

“Eighty, 85 percent of our workers have little education, what do you think they’re going to do if this factory shuts?” said Hector de Pinto Sanchez of the La Alameda brickworks.

The answer, says Pampillon, is join Spain’s swelling ranks of jobless, and push unemployment to 15 percent by late next year from a current 9.6 percent.

Nine out of 10 new jobs in Spain are going to immigrants, 5 million of whom have arrived since 2000 and who are willing to work for less than Spaniards, according to a study by the IESE business school.

Unemployed Spanish builders have little chance of finding work elsewhere in Europe as countries to the north have enough immigrant service workers and want high-skilled professionals, said Pampillon.

With one of Europe’s lowest levels of secondary education but labour costs as high as Germany‘s, Spain is going nowhere in a globalize economy, he said.

Supporting Spain is one of the world’s most solvent banking systems, a diversified corporate sector and the prospect of mid-term housing demand after 10 percent population growth this decade.

But in nearby Numancia de la Sagra, the Socialist mayor is cancelling public spending projects as tax income plunges. He hopes two new industrial estates can absorb some of the construction lay offs.

“We’re not going back to what we had before,” says Lorenzo Toribio Tapiador, sitting in a brand new town hall, within sight of several abandoned job sites.

Editing by Sara Ledwith and Clar Ni Chonghaile

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