* Spain edging closer to third election in a year
* Political vacuum yet to derail growth overall
* Construction firms starting to feel fallout
* Infrastructure tenders on hold as budget plans stall
By Sonya Dowsett and Sarah White
MADRID, Sept 9 Spain's convalescing construction
sector was hoping to move on from a national economic crisis
which at its height saw abandoned building sites and bankrupt
infrastructure projects littering the landscape.
But a political paralysis that has left the country without
a settled government for all this year could stall a return to
Industry figures from builders and designers to material
suppliers are expressing concern that no administration is now
able to sign off on new projects, compounding years of cuts in
"It's difficult to distinguish whether the fall in activity
comes from the lack of government or because we still haven't
pulled out of crisis," said Jose Maria Carbajo, manager at
His small Madrid-based company had a good run in recent
months, winning contracts to repair a Metro line in Madrid and
reinforce a bridge in the central region of Castilla-Leon.
But like others in the sector, Carbajo expects the ripple
effects from the political paralysis will become clearer in the
Following two inconclusive national elections, Spaniards
could be heading to the ballot box for the third time in a year
after acting Prime Minister Mariano Rajoy last week lost a
parliamentary vote of confidence for a second term.
The industry is one of the most vulnerable to the lack of
leadership which appears to have done little until now to hinder
a three-year rebound from recession. Spain posted growth nearly
three times the euro zone average in the second quarter.
While a flood of foreign funds has jolted the housing sector
back to life, public works spending has slumped by more than
three-quarters in the past six years as the state slashes costs
to trim its public deficit, industry figures show.
Cement consumption has fallen to its lowest levels since
1965, according to building materials lobby group Oficemen.
Rajoy's acting government called an end to new spending on
all but essential items such as pensions in July, four months
ahead of schedule, in a bid to try and keep the deficit in
check, and industry players expect the situation to worsen as
plans to draw up next year's national budget stall.
"The impact from the budget will be felt from now on," said
Eduardo Sanchez, head of projects at Sistema Ingenieria, a
Canary Islands-based designer of large-scale projects like
roads, bridges and ports.
"Everything that hasn't been signed off so far won't go
ahead - that's between a third and a quarter of what they were
going to do this year," he said.
Though half of the designer's business came from Spain last
year, revenues are holding up thanks to expansion abroad to
countries like Senegal and Panama, he added.
BUDGET IN SPOTLIGHT
Low oil prices and inflation, robust exports and a
turnaround in Spain's ailing job market, thanks in part to a
record tourism season, have put the economy on course to expand
by close to 3 percent in 2016.
Yet with a fully-functioning government, Spain might have
posted even higher growth rates, economists say, while it will
not be best-placed to ride out the slowdown expected as of 2017
when the recovery moves into a lower gear, closer to 2 percent.
Spain is unlikely to be able to present a new budget for
2017 by a mid-October deadline set by the European Commission,
and the economy ministry has said it would instead file an
extended version of this year's plan.
Builders are the ones most likely to feel the pinch as a
result going into next year.
"It does not allow you to plan new infrastructure projects,
so it means construction companies will feel the paralysis a
little longer," said Juan Jose Toribio, professor of economics
at the IESE business school.
The sector makes up some 5 percent of gross domestic
product, versus over 10 percent before a construction crash that
began in 2008.
Firms linked to construction, from glass providers to cement
suppliers, are clinging on to contracts awarded months ago and
overseas markets they branched into after demand at home
collapsed during a long recession.
Some builders, including larger ACS, have warned
that even with a new budget, deficit constraints mean
state-funded infrastructure projects will remain scarce, with
maintenance contracts providing the bulk of activity.
But even these need to be signed off.
"The sooner a government is in place, the sooner we'll get
some activity," ACS's director general Angel Garcia Altozano
told analysts in July, when it reported a 15 percent drop in
Spanish construction revenues for the first half. More than 80
percent of its sales now come from overseas.
(Editing by Angus MacSwan)