Mixed picture.  Despite the persistence in optimism over the economic outlook for 2000, recent data releases point towards a still sketchy and volatile recovery that remains below expectations at the beginning of the year.  In May, the monthly indicator for economic activity (IMACEC) increased at an annual rate of 7.4%, one percent above the April reading.  However, the increase in the growth rate was mainly due to a statistical effect attributable to the two extra days worked in May 2000 compared the same month last year.  According to the Central Bank two additional working days typically account for 1-2% of extra growth.  May growth was driven principally by strong industrial production, which increased 11.3% over the same month in 1999.  However, industrial production exhibited volatility in June receding strongly to just 4.7% growth year-over-year.  While a June slowdown was generally expected, owing to the torrential rainfalls, the result still remained below expectations.  Non-durable consumer goods and intermediate consumer goods registered less than half the growth rates registered in May and capital goods production plummeted 18.6% (May: -9.4%) over the same month last year, as companies remained reluctant to heighten their investment activities.  

Unemployment remains high.  Sluggish investment is also taking its toll on unemployment, even though current figures remain in line with expectations.  However, the persistence of high unemployment is not consistent with the government’s electoral campaign promises.  The unemployment rate spiked from 8.9% in the moving quarter of April-May up to the current 9.4%in May-July.  On the other hand, unemployment is showing some improvement over last year’s levels and the trend change in employment initiated in March of this year clearly points towards an improvement (June 2000: 1.4% lower unemployment than June 1999; May: 0.9%; April: 0.2%).  Retail sales remained buoyant despite the stubbornly high unemployment and adverse weather conditions in June.  But as is the case with other indicators, supermarket sales confirm the highly volatile path that the economy has to traverse to reach pre-recession growth levels.  According to the National Statistical Institute (INE), supermarket sales increased 8.5% year-over-year in June, up from a sluggish 2.1% May but well below the strong April reading of 12.6%.

Inflation surprises positively.  In July, consumer prices crept upward 0.1%, significantly below market expectations, which oscillated between 0.30% and 0.35%.  The annual inflation rate increased a notch to 3.8% from 3.7% in June.  Although transport prices continued to exert pressure on the consumer price index with 0.17% growth, decreasing clothing prices compensated the spike, further aided by lower education prices.  The underlying inflation rate (IPCX, the lead indicator watched by the monetary authorities, which excludes the volatile categories of fresh fruits, vegetables and fuels) dropped 0.1% in July over June, the first decline of this indicator since 1997.  However, the annual IPCX rate remained unchanged at 2.7%. 

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