transport services, sectors which are essential for strengthening the competitiveness of spanish industry and exporters. to conclude, i am confident that if the spanish economy is capable of mobilising the potential nurtured over many years of building up stability and improving the workings of markets and institutions, then it may rise to the challenges and difficulties facing it and continue to make progress in the medium term in narrowing the welfare differences with the most advanced countries.

the real estate sector, which set in train a correction of the excesses that had built up during the long expansionary phase. these excesses had largely arisen owing to the global environment of financial laxity and undervaluation of risk, and to monetary and financial conditions that were particularly accommodative for spain following emu membership. these conditions were based on interest rates that held at low levels over a very extensive period and which were conducive to rapid indebtedness by households and by firms, mainly those related to the real estate sector. in any event, the adjustment of the real estate sector began slowly, mirroring the gradualism with which the determinants of residential investment changed. hence, as the change in monetary policy stance that began in late 2005 progressively passed through to household and corporate borrowing costs and as the overpricing of housing became more patent, the dynamism of the sector eased off. however, this gradual pattern was altered when the international financial crisis raised credit risk premiums across the board, blocked a most significant part of banks'wholesale funding mechanisms and spread uncertainty and mistrust, most particularly in respect of economies subject to real estate adjustments. against this background, the demand for housing fell off drastically, when the production of houses was still at a very high volume. house prices, after several years of increasingly more moderate rises, began to post small declines in some market indicators as from the second quarter of this year, while housing starts fell by almost half. this abrupt change in scenario, together with the tightening of financing conditions, which i shall address in greater detail later, meant that real estate companies had to restructure, with some of them even going bankrupt. this series of factors compounded the correction of the residential sector with adverse consequences for employment, which is acting as the main channel through which the adjustment of the sector is spreading to the rest of the economy. household consumption is rapidly reflecting the deterioration in confidence, against a backdrop of considerable financial tensions, and the abrupt turnaround in the employment situation. as a result, a certain rise in the saving rate consistent with the current scenario of greater uncertainty and financing difficulties might be taking place. i should stress that this far - reaching slowdown in private consumption is the factor that is most contributing to the loss of dynamism in the economy. business investment also slowed rapidly, in line with the changing financial conditions, the profile of domestic demand and the deterioration in business confidence.