Disappointing Q1 GDP.  On 23 June, the Ministry of the Economy (MECON) released first quarter GDP data.  According to MECON, economic activity increased by 0.9% in the first quarter over the same quarter in 1999, well below the LatinFocus Consensus Forecast, which projected growth to reach 1.6%.  The positive first quarter performance followed five consecutive quarterly contractions in GDP since the third quarter of 1998.  The government also revised growth figures downward for the last quarter of 1999, from 0.1% growth to a 0.3% contraction.  The revision lowered the 1999 annual GDP variation from -3.0% to -3.1%.  Even though the economy has shown some signs of recovery in recent months, the first quarter GDP release indicates that recuperation is proceeding slowly, particularly considering the weak comparison with Q1 1999, when the economy contracted 3.0%. 

The mild uptick in GDP growth was primarily attributable to a small recovery in public and private consumption (+1.3% year-over-year) and export expansion (+3.8% yoy).  However, on the downside, investment dropped 3.1% for the same period, an 'improvement' from the 7.5% decline experienced for 1999 but nevertheless the sixth consecutive decline since Q3 1998 and a clear indication that optimism about recovery remains subdued. 

The key sectors responsible for the slow recovery were agriculture and construction, which contracted 4.2% and 5.8% respectively over the same quarter last year.  Both the fishing and mining sectors performed strongly, registering 12.8% and 18.8% growth over the first quarter in 1999.

Business lacks confidence in economic recovery.  The National Statistical Office's (INDEC) May industrial survey shows that 81.2% of the companies surveyed either do not expect internal demand to increase or anticipate a further decline this year and only 10.3% expect to increase their inventory.  Furthermore, recent data releases still do not confirm the government's assertion that economic growth should recover more strongly in the second quarter.  The May industrial production data released by INDEC showed seasonally adjusted industrial activity up a modest 1.6% over the same month in 1999.  Similarly, construction activity also remains depressed.  According to INDEC, May construction activity index (ISAC) was down 25.1% over the same month last year. 

Signs of recuperating consumption.  The University Torcuato di Tella's June results of the consumer confidence index (ICC) showed that private consumption is likely to improve in the coming months, since consumers are slowly beginning to gain confidence in economic recovery for this year.  In June, both confidence in the economy and consumer confidence for this year rose by 3.4% and 7.9% respectively over the same month last year, following three consecutive monthly declines.  The improvement in confidence is still not being reflected in official consumption data from INDEC, which indicates that supermarket sales in May were down 4.3% from the same month in 1999, while total shopping centre sales were down 7.8% for the same period.

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