Ireland & Spain to suffer more than UK on housing woes

The correction in the economies of the Republic of Ireland (AAA/Stable/A-1+), Kingdom of Spain (AAA/Stable/A-1+), and the United Kingdom (U.K.; AAA/Stable/A-1+) as a result of the downturn in the housing market and related construction sector slowdown could be protracted, said Standard & Poor’s Ratings Services in a recent report.

“The slowdown will hit economic growth in these three sovereigns to varying degrees,” said Standard & Poor’s credit analyst Trevor Cullinan in the report, titled “A Sharp Construction Sector Retrenchment Would Hit Ireland And Spain Hard” and published October. 19, 2007.

Our scenarios focus on the impact of the likely slowdown in the construction sector. Our base case indicates that Ireland and Spain will take the most significant direct hits, while the U.K.’s more diversified economy, which is currently experiencing a less stark moderation in house price and construction sector growth, should weather the storm to a greater degree.

“Nevertheless, all three economies will experience a slowdown in growth and are open to the nefarious impact that falling consumer confidence could have on future economic output,” added Cullinan.

Moreover, our stress scenario projections indicate that a sharper decline in the construction sector would result in a slower adjustment back to our base case scenario in Ireland and Spain, as compared with the U.K. U.K. economic growth would likely regain our base case GDP forecast for 2008 by the end of the decade. Meanwhile, in Ireland and Spain, economic growth would take until closer to 2015 to regain the growth rates expected in 2008 in our base case, due to the relative size of the construction sector in the overall economy.

All three sovereigns will experience worsening fiscal positions, based on an assumption of unchanged spending plans, given–as we believe–that property-related revenues have passed their peak.