Spain's current account deficit, the world's second-largest before the global economic crisis hit, tumbled by almost two-thirds in April as deep recession destroyed demand for foreign goods.
Imports shrank by 35 percent in the month, taking the deficit to 3.49 billion euros ($4.89 billion) from 9.14 billion euros in April 2008, the Bank of Spain said.
With the disappearance of easy credit, Spain is no longer able to support an import habit that pushed its current account deficit to 10 percent of gross domestic product in 2007 during the last leg of its decade-long boom.
On the positive side, the implosion of imports means trade is now less of a drain on the overall economy. Without the falling current account deficit, Spain's economy would be contracting even faster than the roughly 4 percent decline in GDP generally expected for this year.
The current account is the broadest measure of a nation's trade with the world, and economists had long warned that Spain's deficit was reaching unsustainable levels as the economy enjoyed a decade long housing and construction boom.
At one stage, it was second in nominal terms only to that of the United States, despite Spain's population being only 45 million.
This was made possible by a chain of financing which was swept away by the credit crunch and the failure of the U.S. subprime market.Spanish banks sold bonds on a massive scale to foreign lenders, such as German pension funds. The banks then took this money and lent it to Spaniards to buy homes, feeding a bubble in the housing market.
With
Spanish property prices sliding and foreign lenders a scarce commodity, Spain's trade deficit is contracting fast. Shrinking demand in the rest of the world means exports are falling too, although their 26.5 percent contraction in April was substantially lower than the fall in imports.
April's current account deficit compared with a 6.55 billion euro deficit in March.
Story from
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