Analysts in Spain believe that a new wave of unemployment is about to hit the Country, despite the efforts it is making to control its deficit spending and current rate of unemployment which stands at about 26 percent.

Spanish banks are set to cut off financing for thousands of builders which they have kept alive during the last five years resulting in the explosion of a new building bubble. Many of the construction companies have built nothing but are believed to have no liquidity and no possibility of future earnings which is causing the banks to question any future investment. This will result in a tsunami of developer bankruptcies over the next two years and will force another round of lay-offs by companies in a sector which once contributed up to 18% to Spain’s overall growth in previous years.

Unemployment could surge past 27% leading to more depression in consumer spending and resulting in lower house prices which are already 30% off their 2007 highs. Spanish property values could drop 50 percent from their 2007 peaks by 2015.

Of Spain’s 67.000 developers, more than half are considered to be “zombie” companies which are being propped up by government legislation. They are thought to have larger liabilities than assets and only generate enough income to repay the interest on their loans.

At the peak of its building boom, Spain sold 800,000 homes while developers acquired enough property to last the next 10 years. Spain constructed 675,000 homes per year from 1997 to 2006 – more than France, Germany and the UK combined – leaving the country with a surplus of around 2 million empty homes.

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