By Paul Day

PLUMMETING Spanish consumer demand slowed the rise in Spain's current account deficit in June but caused July retail sales to fall for the eighth month running, data showed yesterday.

The deficit in Spain's current account, among the largest in the world, totalled 8.47 billion euros in June, up from 7.26 billion euros last year, marking a slower increase than previous months, the Bank of Spain reported.

Retail sales fell a lower-than-expected 6 percent in July, supported by shopper enthusiasm for the summer sale discounts.
Sales of personal goods, including clothing, rose 2.2 percent in July after a 5.6 percent fall in June.
Analysts said consumer demand would fall further, helping Spain's balance of payments but choking household spending responsible for about two thirds of economic growth in Spain. “The deficit is expected to continue to improve over the coming months as imports fall,” said Citigroup economist Jose Luis Martinez.
Spanish trade growth has weakened on the back of a sharp economic slowdown which sent consumer confidence spiralling to a record low in July after unemployment rose to the highest level in the euro zone during June.

A 1.3 percent fall in imports helped slow the rise of Spain's trade deficit which rose to 7.88 billion euros in June. “Trade deficit growth slowed from last month and will continue to register strong corrections over the second half of this year, and through next year,” Fortis Bank economist Diego Fernandez said.

Spanish shoppers are feeling the brunt of a worsening credit crunch as a rising Euribor rate pushes up monthly mortgage costs while the abrupt end of a decade-long property boom has sent house prices tumbling.

As Spaniards tighten their belts amid the looming risk of moving in to negative equity, retailers' ability to offer competitive summer sales offers has become key to their survival.

One trader who preferred not to be named, said Inditex, which gains around 36 percent of revenues from Spain, could have lost customers to brands that offered even steeper discounts this summer.

Other signs of Spaniards searching for ways to save some euros include positive outlooks from companies such as Oerlikon Solar, which makes equipment to manufacture solar panels.

The group is moving into the Spanish market this year and is cautiously optimistic about the 2008-2009 period. “In high sun regions such as Spain, and regions that have high energy costs at peak times, which is Spain, it's a very attractive business model. We're seeing a lot of interest,” said Oerlikon Solar CEO Jeannine Sargent.


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