Economic activity resurfacing slowly.  Healthy economic recovery from last year's recession continues to remain absent.  In mid-June, the government will release first quarter GDP data, which is expected to come in at a moderate 1.6% according to this month's forecast.  Recent data indicates that growth is unlikely to pick up substantially in the second quarter.  The leading indicator for Argentine economic activity, which is elaborated by the Centre for Financial Research at the Universidad Torcuato di Tella (CFR-UTDT), dropped by 1.8% in April over March and returned to the same recession levels seen in the same month last year with virtually all of the key variables experiencing a monthly decline. 

Nevertheless, according to the National Statistical Institute (INDEC), industry continued to improve in April, with seasonally adjusted industrial production expanding 5.0% over the same month last year.  Key sectors driving the rebound were the export industry, particularly basic metals, automobiles and textiles.  On the downside, the construction industry, such as cement and construction materials sectors, remained subdued.  In April, the INDEC construction activity index (ISAC) dropped 12.9% over the same month in 1999, the third consecutive decline this year, driven primarily by the cancellation of private and public sector investment plans this year.  This month's Consensus Forecast data, however, shows that industrial production, nevertheless, will expand 6.6% this year and is likely to continue on a favourable upward trend into 2001 with growth reaching 6.4%.

According to INDEC's industry survey, expectations for a pickup in domestic demand remain subdued.  In the monthly survey of industry this April, 63.3% of businesses indicated that they did not anticipate an increase in domestic demand.  INDEC consumption data also indicates that domestic demand remains depressed.  In March, supermarket sales were down 1.8% over the same month last year.  Unfavourable credit conditions and tax hikes implemented earlier this year, continue to affect consumption patterns.  The Consumer Confidence Index elaborated by CFR-UTDT shows that consumers remain sceptical about the economy.  Both confidence in the economy and consumer confidence for this year dropped by 2.8% and 6.3% respectively, the third consecutive monthly decline this year.

This month's forecast survey indicates that panellists are beginning to factor the stagnation in economic activity into their growth projections for this year.  The Consensus Forecast for 2000 GDP growth dropped  from  3.2% 30 days ago to the current 2.9%.  Similarly, projections for 2001 have dropped 0.3% over last month.

Further Fiscal Adjustment.  On 29 May, the De la Rúa government announced further US$ 538 million in spending cutbacks for this year under the auspices of the so-called Economic Reform Programme.  Key measures that the government will adopt in the coming months include: a 12%-15% reduction in public sector salaries, up to 50% cuts in special pension benefits for public employees, a US$ 40-50 million cut in spending on national universities and the restructuring of numerous government agencies. 

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