No clear signs of recovery.  Major economic releases continue to indicate that economic activity has not rebounded this year.  In the first half, economic growth has reached just 0.5% and 0.8% in the first and second quarter respectively.  More recent data releases show that growth remained tepid through the third quarter as well.  The University Torcuato di Tella's (UTDT) index of leading economic indicators dropped 1.6% in September over the same month in 1999, which indicates that the economy remained in slump.  The UTDT release also places the probability of a rapid recovery at 5% and even lower, if the recent political turbulence is incorporated.

According to the National Statistical Office (INDEC) data, growth in industry remains virtually absent.  Seasonally adjusted industrial production contracted 1.4% in September over the same month last year, despite an increase of 3.0% over August.  Production in the food, textile and construction industry all remained in negative territory.  Furthermore, INDEC’s industry survey confirms that business sentiment remains subdued.  Of the surveyed businesses, only 20.0% (down from 26.2% in August) expect domestic demand to increase in the last quarter of this year, while the majority expects no variation (46.2%) or further decline (33.8%). 

The UTDT’s October consumer confidence index (ICC) indicates that consumption is also unlikely to show substantial improvement this year.  According to the ICC, confidence in the economy and consumer confidence for this year dropped by 19.7% and 0.9% respectively over September.  Supermarket sales rose a modest 0.4% in September over August, while cumulative supermarket sales for this year were down 0.8% compared to the same period last year.  Tight credit conditions and high unemployment (15.4%) remain key impediments to the consumption rebound.

Key sectors of the economy either remain in recession or are showing merely meek signs of recovery and the recent political upheaval is likely to further undermine the prospects for a recovery in confidence, thus thwarting a speedy rebound in economic activity.  The government for the second time revised its growth projections for this year downward from 2.0% to below 1.0% and now expects GDP to grow just 2.5% next year, down from the previous 3.7%. 

Political uncertainty clouds prospects further.  In early October, President De la Rúa decided to restructure his cabinet in an effort to strengthen his party’s forces within the governing coalition.  The resulting resignation by the Vice President Alvarez dealt a significant blow to stability of the governing coalition.  Mounting investor fears over the potential impact of political turbulence on governability and the passage of next year’s budget prompted Argentine bond markets to tank.  The spreads on Argentine sovereign FRBs widened substantially beyond other regional borrowers’.  Argentina’s spreads were driven up by 326 basis points from 30 September through 10 November, compared to Brazil’s C Bond and Mexico’s Par A Bond, which added 108 and 33 basis points respectively. 

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