Spain's Political Stalemate Starts Taking Economic Toll

This year was supposed to be a good one for Spanish builders but the lack of a government three months after an inconclusive general election has put the brakes on economic activity.

"Everything that has to do with construction in this country is blocked," said Carlos Luaces, director general of Spain's association of sand and gravel producers, Anefa.

Spain has been locked in a political stalemate since a general election on December 20 resulted in a parliament divided among the country's four main parties -- none of which won enough seats to govern alone.

No party has so far been able to cobble together a workable coalition and Prime Minister Mariano Rajoy's caretaker government has limited powers and can not approve projects that involve new spending.

As a result the number of tenders for public works projects launched by the central government plunged by 69 percent in January compared to the same month last year, according to Seopan, an association that represents Spanish builders.

"There are no more public works tenders, the sector is paralyzed," said the director of a public works firm in the southwestern region of Extremadura, which employs 800 people.

"This brutal stoppage will mean we will have to let people go and reduce costs," the 42-year-old, who asked not to be identified, added.

The political stalemate comes as Spain is grappling with a jobless rate of 20.9 percent, the highest in the European Union after Greece.

Spending on public works projects typically rises before an election as politicians seek photo opportunities on the campaign trail and then fall off.

Rajoy stepped up the number of inaugurations of new roads and bridges at the end of last year.

"It was clear that the machine would slow down once the ribbons were cut and the photo was taken," said Josep Ramon Fontana, a senior researcher at Catalan Institute of Construction Technology (Itec).

But what was not expected was that it would take so long to form a government after the general election, he added.

"We all expected that a central government would be formed by January 1, which would be able to tell us roughly what its policy would be in terms of infrastructure," he added.

- 'Critical situation' -

Until a government is formed, certain projects such as a planned expansion of Spain's high-speed railway will be delayed.

"It is not just an impasse, it is a critical situation," said Luaces.

The political uncertainty is paralyzing other areas such as the food and agriculture sector as well, said Antonio Masa, the head of the chamber of commerce of Badajoz, Extremadura's largest city.

"Entrepreneurs are putting the brakes on their investments due to the political situation in Spain," he said.

Businesses are waiting to see if a new government will change legislation before spending money.

Spain's economy, the eurozone's fourth largest, grew by 3.2 percent in 2015, its second year of growth as the country emerged from five years of on-off recession sparked by the bursting of a property bubble.

But analysts predict economic growth will slow this year.

Spanish bank BBVA predicts that the political uncertainty could knock up to 0.5 percentage points off its forecast growth rate of 2.7 percent for 2016.

After parliament, at the start of March, rejected a coalition government between the Socialists and new center-right party Ciudadanos, parties have until May 2 to produce a new government acceptable to a majority of lawmakers.

If they fail, fresh elections will be held at the end of June. Polls suggest another election will not resolve the stalemate, however.

Spain's tourist sector, which accounts for 14 percent of the nation's economic output, is also worried.

"If there are elections after all on June 26, the sector will be hit since consumers will not want to make reservations beforehand," said Juan Molas, chairman of Spanish hotel federation, Cehat.