Euro-Zone Construction Falls - Wall Street Journal

By ILONA BILLINGTON

LONDONâ€"Construction across the euro zone continued to decline in July, indicating the single currency area will likely struggle to post economic growth in the third quarter of this year, data showed Wednesday.

The drop was led by the fiscally most troubled nations of the bloc, including Italy and Spain, which have on and off traded places at center stage of the euro-zone sovereign debt crisis this year with Greece, which has fallen behind in fulfilling the terms of its international bailout.

Euro-zone construction fell 0.3% on the month in July and 4.7% on the year, said Eurostat, the European statistical agency. In June, euro-zone construction decreased 0.6% on the month and 2.8% on the year.

The figures are line with other data and highlight how tough it will be for the 17-nation euro zone to return to growth as the region's governments attempt to cut budget deficits by reducing spending and increasing taxesâ€"measures which tend to damp economic expansion. The euro-zone's economy contracted 0.2% in the second quarter.

Italy's construction activity dropped 2.2% in July from June and 14.2% from the same month of 2011.

Spain, which had a construction boom in the years before the onset of the global financial crisis beginning in 2007, saw a 2.1% decrease on the month and 16.1% on an annual basis.

Bad debt at Spanish banks rose to a record high in July and deposit outflows accelerated, according to data published on Tuesday. Spain has secured a pledge from the European Union to provide up to €100 billion to help the country recapitalize its banks.

Portugal's construction industry recorded a 0.2% drop on the month an 18.2% decrease on the year, the July Eurostat data showed.

Monthly data for Greeceâ€"the first euro-zone economy to require a bailout and now in its fifth year of recessionâ€"aren't available, but quarterly figures show construction slumped 18.1% from the start April to the end of June compared with the first quarter, and was 28.6% lower when compared with the second quarter of 2011.

Other data is expected to add to the gloomy economic outlook for the region. Data firm Markit's preliminary purchasing managers indexes for September are likely to show another month of declining business activity after indicating contractions in July and August, according to a Dow Jones Newswires survey of economists conducted last week.

Write to Ilona Billington at ilona.billington@dowjones.com