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Eurozone construction shrinks, Spain weak

Construction output in the 15-nation eurozone shrank by 0.6% in June from May as slowing economies and a bursting of housing bubbles in countries such as Spain hammered the sector.

In releasing the data on Wednesday, the European Union’s statistical unit Eurostat said that compared with June 2007, construction output in the same month this year sank by 2.4%. Companies in the sector are already hurting with the world’s No. 1 brick-maker, Wienerberger, in eurozone member Austria, warning this week that its core earnings will drop by 15% this year after a collapse in the UK and US construction markets.

Last month French building materials giant Saint-Gobain cut its profit forecast and declined to rule out a drop in income this year. Analysts saw no sign of a let up. “We saw some fairly good construction data through the first quarter, such as in Germany and there is some payback for that,” said Matthew Sharratt, an economist with UBS bank in London.

Construction in the eurozone’s biggest economy fell 2.1% in June from May. “We know about the implosion of various construction housing bubbles, particularly in Ireland and Spain and to a lesser extent in Britain. It’s a pattern that we should probably anticipate going forward,” Sharratt said.

The euro zone recorded its first ever contraction in the Q2 with fallout from the US housing meltdown crisis and ensuing credit crunch partly to blame. Deterioration in construction appears to be rapid. Eurostat said construction edged up just 0.1% in May, after it revised downwards its initial reading of a 0.2% rise for the month.

Slovenia and Spain saw the biggest drops in the single currency area, with month-on-month falls in June of 5.8% and 3.1% respectively. The annualized drop in Spain was 15.9%. The sector’s pullback in the wider 27-nation EU was more severe with a month-on-month drop of 1.5%. Britain, which like Spain is suffering from a burst housing bubble, saw construction shrink by 5.4% in June compared with May. The data was not all gloomy with the sector recording monthly gains of 2.9% in Portugal and Romania in June, with Poland up 2.6%. (Reuters)