Growth remains tepid in second quarter.  The Argentine economy is still far from full recovery following last year’s 3.1% contraction.  The Ministry of the Economy reported that Gross Domestic Product (GDP) expanded 0.8% in the second quarter over the same quarter last year.  In addition, shortly following the second quarter release, the fist quarter GDP growth was adjusted downward from an already weak 0.9% over the same quarter last year to 0.5%. 

The sluggish second quarter reading was caused mainly by a 10.5% contraction in the construction industry over the same quarter in 1999, the sixth consecutive quarterly decline since the fourth quarter of 1998.  The continued slump in the labour-intensive construction sector is likely to maintain unemployment levels at their current highs (15.4% in May 2000) and put further pressures on the government to revive the economy. 

Manufacturing activity slowed from 1.8% year-over-year growth in the first quarter to 0.7% in the second quarter.  The second quarter reading in the manufacturing industry is particularly disappointing given the very weak comparison base in the same quarter last year, when the sector’s activity contracted 11.3%.  Only the mining sector experienced a strong 20.5% expansion in the second quarter, driven primarily by higher oil prices.  The services industry registered a modest 1.0% uptick over last year prompted by a 3.6% expansion in financial intermediation.

Along with the GDP data, the Economy Ministry also released global supply and demand data.  According to the figures, domestic demand continues to be restrained by lagging investment and a slow recovery in consumption.  Gross fixed investment declined 6.3% in the second quarter over the same quarter in 1999, while consumption expanded only 2.5%.  Private consumption accounted for the major part of consumption growth, increasing 3.9% year-over-year, while public consumption levels remained subdued owing to the government’s efforts to contain the fiscal deficit.  Exports of goods and services expanded a modest 2.4% for the same period despite the recovery of global demand. 

Industry sluggish.  More recent data confirms that economic growth will stay behind expectations this year, as a strong recovery in industry and consumption remains absent.  According to the National Statistical Office (INDEC), seasonally adjusted industrial production was down 3.0% in August over the same month last year.  Furthermore, INDEC’s industry survey confirms that the sector is unlikely to experience a substantial rebound this year.  Of the surveyed businesses, only 26.2% expect domestic demand to increase and some 69.6% of the companies expect sales to remain at current levels or to drop even further. 

Consumption not rebounding.  The University Torcuato di Tella's (UTDT) August consumer confidence index (ICC) showed a continued slump.  Both confidence in the economy and consumer confidence for this year dropped by 7.4% and 1.4% respectively over July.  In addition, INDEC data shows that supermarket sales dropped 6.7% in August over July, the fourth consecutive decline over the same month last year.

Prospects worsening.  Neither consumers nor industry are exhibiting the confidence necessary to pull the economy clear from recession.  As a result of continued negative results in major economic indicators, the government has revised its growth projections for this year downward from 4% to below 2%.  

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