Following the collapse of Spain’s property bubble, the outlook for the nation’s construction sector appears grim.
The country is experiencing a widespread increase in bankruptcies among building and construction companies, which are running short on the money they received through two rounds of refinancing after the global financial crisis.
Spain’s economy is in turmoil overall. According to a report by consulting and accounting firm PricewaterhouseCoopers (PwC) noted that the number of companies filing for bankruptcy has been on the rise. The number of bankruptcies in the first quarter of 2012 was 21 per cent higher than in the first quarter of 2011, rising from 1,379 to 1,665.
In dire news for the construction sector, nearly 60 per cent of the country’s bankruptcies were from building and construction businesses.
On the whole, bankruptcies in this sector rose 19 per cent during the first quarter of 2012 over the numbers from the first quarter of 2011.
Spain’s construction companies earned a reprieve following the global financial crisis, benefiting from cash from refinancing efforts in 2008 and 2010. The funds were reallocated into the building sector to help bring to fruition business plans that, it turns out, were based on unrealistic projections and unattainable targets.
The sector had been enjoying a boom leading up to the global financial crisis, with speculative buying leading to a bullish market. According to European statistical service Eurostat, levels of construction activity are less than 50 per cent of what they were prior to the financial crisis.
The sector would need a massive rebound in order to halt or reverse the trend that has seen more and more companies forced into insolvency.
PwC noted that most of the companies to go bankrupt in Spain have been smaller businesses, which provides at least some relief on the employment front. The number of workers who have lost their jobs due to corporate bankruptcies remains relatively small compared to the unemployed population as a whole. Still, the number of professionals who are now out of work due to bankruptcies has increased by eight per cent compared to the first quarter of 2011.
The second hardest-hit sector in terms of bankruptcies in Spain is the industrial sector. According to the report, industrial companies accounted for 22 per of all insolvencies during the first quarter of 2011.
