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BBVA: Residential Investment Will Accelerate In 2017

9 September 2016 – Expansión

Investment in construction, in particular in residential housing, will become one of the main drivers of the recovery next year. BBVA Research, the research arm of the financial institution, forecasts that real estate investment will experience annual growth of 2.8% in 2016 and of 3.3% in 2017. According to the entity, the real estate boom will continue for the next two years.

Nevertheless, the “Economic Observatory for Spain” report, which the research arm presented yesterday, warns that domestic uncertainty and new “fronts of scepticism” – such as those resulting from Brexit – “will also affect the real estate sector over the next two years”. Even so, BBVA forecasts that house sales will continue to grow over the medium term, supported by “favourable financing conditions”. “The gradual increase in demand in an environment of decreasing supply will encourage construction activity and the emergence of new residential projects”, predicts the bank.

The Chief Economist at the BBVA Group and Director of BBVA Research, Jorge Sicilia, explained that the recovery in the housing market is still in its “very early” days, and as such, he believes that we should be “on alert” to the effect of low interest rate policies in the event that they last for a long time. In this sense, he indicated that although these policies are driving savings and investment decisions, they may end up having a “negative impact”. Despite these risks, BBVA’s research service calculates that residential investment will increase by 2.8% this year and by 3.3% in 2017. It also forecasts that investment in construction – which includes public works and non-residential properties – will grow by 2.3% this year and by 3% next year.

Echoing the report published on Wednesday by Analistas Financieros Internacionales regarding the evolution of GDP, BBVA forecasts that the economy will grow by 3.2% this year, before slowing down to 2.3% in 2017, due to a deceleration in private consumption and exports. According to the report, the political uncertainty resulting from the lack of Government may reduce economic growth by up to seven tenths this year and next, although this negative effect on GDP is one tenth lower than the impact calculated in May.

The labour market will also feel the effects of the slow down in the economy. This year, half a million full time jobs are expected to be created, but next year that figure will decrease to 300,000. The unemployment rate is predicted to decrease to 18.2% by the end of next year.

Original story: Expansión (by C.R.)

Translation: Carmel Drake

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