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Economy
contracts in the third quarter.
At the end of December, the Ministry of Economy released Q3 Gross Domestic
Product (GDP) data, which indicate that economic activity declined by
0.03% in the third quarter over the same period in 1999. The third
quarter results confirm the dire growth story for 2000 and came in below
the government’s pessimistic 0.8% estimate for the same period.
The government also used the occasion to revise the second quarter growth
figure downward from 0.8% to just 0.2% year-over-year.
The
strongest third quarter contraction was experienced by the construction
sector, where activity dropped 14.4% over the same quarter in 1999.
As a result, labour-intensive construction activity has now declined seven
consecutive quarters, which bodes unfavourably for unemployment. The
fishing and agricultural sectors also experienced declines, contracting
11.1% and 4.0% over the third quarter 1999. The only sectors to
exhibit growth in the third quarter were electricity, gas and water;
mining; and transport and communications, which grew by 10.9%, 6.9% and
1.7% respectively
Furthermore,
global demand and supply data indicate that the key driving force behind
the current economic downturn is the slump in investment.
Investment declined for the eighth consecutive quarter, registering
a 10.6% year-over-year contraction in the third quarter of 2000.
Consumption also again entered into negative territory (-0.4%
year-over-year) after showing meek signs of recovery at 0.8% and 0.7% in
the first and second quarter of 2000 respectively.
Industry
remains in slump.
Recent economic indicators confirm that economic activity is likely to
have remained in a slump in the last quarter of 2000. The National
Statistical Institute (INDEC) reports that industrial production dropped
5.6% in November over the same month in 1999. In addition to a 77.8%
drop in sugar output, the construction related production of cement and
other construction materials was down 19.8% and 17.9% over November 1999.
Industrial gas and crude oil production, on the other hand, expanded 21.3%
and 14.1% over the same month in 1999. The INDEC industry survey
indicates that businesses still remain uncertain about 2001 prospects.
While 47.4% of the businesses surveyed expect internal demand to increase
this year, 50.0% expect no pick-up over 2000, while an additional 2.6%
anticipate a further downturn. In addition, 38.9% of Argentine
companies expect to undertake new investments this year, compared to 28.9%
who are not considering new investments and 32.2% who expect to maintain
the level of investments at current levels. This month’s Consensus
Forecast indicates that panellists expect industrial production to have
closed last year with a modest expansion. However, the industry
growth figure was again revised downward over the previous month’s
forecast – the fourth consecutive downward adjustment.
Nevertheless, panellists expect the pace of industrial output to quicken
in 2001.
Little
consumer optimism.
In early December, INDEC reported that unemployment remains high.
The government data shows that unemployment dropped from 15.4% in May to
14.7% in October, which is still well above the 13.7% registered in
October 1999. A combination of tight credit conditions and high
unemployment are likely to have held consumption at bay. As a
result, consumption is likely to have remained flat throughout the end of
last year, despite the seasonal uptick at the end of the fourth quarter.
Nevertheless, the Universidad Torcuato di Tella's (UTDT) December consumer
confidence index (ICC) showed an improvement in consumer expectations.
Both confidence in the economy and consumer confidence for this year
registered increases of 12.6% and 7.7 respectively over November. As
a result, the overall index increased 10.2% over November.
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