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Economy
contracted again last year.
Even though final growth data for 2000 is not scheduled for release until
March, the government has released preliminary figures, which suggest that
the economy contracted 0.35%, following the 3.4% decline in 1999.
The new growth figure is the result of a downward revision of last
year’s third quarter result from -0.03% to -0.2% and an anticipated 1.5%
contraction in the fourth quarter.
Investment
remained depressed.
Key indicators for the final months of last year confirm that economic
activity slumped towards the end of 2000. Investment, which had
registered a 10.6% contraction in the third quarter, is likely to have
remained substantially below 1999 levels throughout the year.
November trade data indicate that annual imports of capital goods were
down 12.1% over the same period in 1999. Thus, investment is likely
to have experienced the ninth consecutive quarterly decline in the final
quarter of last year. However, the outlook for investment is
improving, owing to a decline in interest rates and increased credit
availability in domestic markets prompted by enhanced government access to
international capital markets.
Consumers
gaining confidence despite last year’s slump.
The most recent National Statistical Institute (INDEC) data show that
supermarket sales last year declined 0.5% over 1999. Furthermore,
the National Automobile Association (ADEFA) reports that domestic
automobile sales declined 14.9% over 1999. The reduction in demand
can be attributed not only to continued high unemployment – currently at
14.7% - but also to tax increases implemented earlier last year by the De
la Rúa administration as part of the fiscal adjustment package agreed to
with the International Monetary Fund (IMF). This year, the easing of
fiscal policy is expected to enable the government to use increased
spending to jump-start economic activity via a major new Federal
Infrastructure Plan, which is expected to help lower unemployment and spur
on a recovery in consumption. The University Torcuato di Tella's (UTDT)
January consumer confidence index (ICC) showed that consumer confidence is
experiencing a rebound. Both confidence in the economy and consumer
confidence for the coming year rose strongly by 27.8% and 10.6%
respectively over December.
Industrial
production subdued but optimism about 2001.
Industrial production data released by INDEC for December indicate that
industrial output actually grew 0.1% last year, but performance varied
significantly among the sub-sectors. Non-metal mineral production
and metals and machinery output (excluding automobiles) experienced the
strongest contractions of 13.4% and 13.9% respectively. Basic metals
(principally aluminium) and automobile production, in turn, grew the
strongest, experiencing 9.7% and 20.6% expansions in output. Despite
some improvement in industrial performance, businesses remain sceptical
about a rapid recovery. The INDEC industry survey shows 54.5% of the
businesses surveyed do not expect internal demand to increase in the first
quarter of this year, 21.2% expect a downturn, while 24.3% expect a
recovery. Despite the likely upturn in Brazilian economic activity,
50.8% of Argentine firms do not expect changes in the amount of products
exported, 28.6% anticipate a pickup, while another 20.6% expect exports to
decline. Nevertheless, this month’s Consensus Forecast shows that
industrial production is likely to accelerate throughout the year with
growth accelerating in 2001.
Moderate
recovery this year.
Declining interest rates in the United States, higher government spending,
a possible weakening of the dollar against major currencies and the
expected pick-up in Brazilian economic activity should counter the lower
global growth outlook and serve as key drivers behind the economic
recovery this year. The government believes that the more favourable
external conditions will provide a good backdrop for a moderate economic
rebound this year estimated at 2.5%. Panellists share the
government’s perspective. After another contraction in the first
quarter, growth is expected to pick up moderately in the second quarters,
but will begin resuming more strongly in the third and fourth quarters.
The pick-up in economic growth towards the end of the year is anticipated
to provide the economy with more sound footing for stronger growth in
2002.
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