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Economic activity plummets in first quarter
According to the Ministry of Economy, gross domestic product (GDP)
contracted 16.3% in the first quarter of the year over the same quarter
in 2001, accelerating the downward spiral from the 10.5% contraction
experienced in the fourth quarter of last year. The first quarter
reading was well below last month’s Consensus figure of 12.3% and
confirmed that the recession continues to deepen.
Aside from fishing, which experienced 16.7% growth, activity in all
sectors of the economy dropped compared to the same quarter last year.
The strongest contraction was observed in the construction industry,
where activity plummeted a staggering 41.5%, followed by wholesale and
retail trade and financial intermediation, which experienced 26.6% and
25.8% declines respectively. The depressed labour-intensive construction
sector is likely to have exerted additional upward pressure on
unemployment, which is seen to have increased to 22.8% by the end of
June, up from 18.3%. Rising unemployment in turn is likely to augment
the probabilities for further social unrest.
Aggregate demand and supply data show that a 46.1% drop in investment in
the first quarter over the same quarter last year was the key driver
behind the contraction. Consumption was more stable but still dropped by
18.9% for the same period. Exports added a meagre 5.4%, as sluggish
global demand and domestic financial system constraints offset part of
the gains provided by the more competitive exchange rate. Imports
dropped a stunning 58.0% over the same quarter in 2001.
More recent data show that consumption and investment are likely to have
continued their downward trajectory in the second quarter. The National
Statistical Institute (INDEC) reports that annualised supermarket sales
declined 5.2% in May over the same month in 2001. The May reading
represents a moderate improvement over the 6.2% drop observed in April
for the same period but nevertheless confirms that consumption remains
very depressed given the already weak comparison base last year.
According to the most recent May 2002 retail sales survey of the
Argentine Chamber of Commerce (ACA, Cámara Argentina de Comercio), 75%
of the businesses polled said that activity dropped in May over the same
period last year compared to “only” 48% in April.
Similarly, trade data suggest that investment deteriorated further in
the second quarter of the year. Annual capital goods imports were down
52.4% in May over the same month last year (April: -47.1% year-on-year).
Furthermore, INDEC reported that the construction industry remains
depressed. In May, construction activity was down 35.1% over the same
month last year, virtually unchanged from the 35.5% drop observed in
April. The absence of a resolution of the current financial system
debacle and the corresponding lack of credit and domestic demand is
likely to exacerbate the current downside pressure on the sector
resulting from the depressed investment setting.
Consensus panellists expect the economic contraction in the second
quarter to remain in double digits, as domestic demand has remained
depressed and export growth will resume very moderately, amidst a lack
of domestic credit availability. The dire economic scenario is expected
to persist through this year with economic activity anticipated to
contract for the fourth year in a row. Despite some easing in the
deterioration of the economy towards the end of the year, the recession
will deepen further, as forecasts were lowered another 2.5 percentage
points below last month’s forecast. Growth is likely to remain absent
until the second quarter of next year, assuming that the government is
able to find a way out of the current economic stalemate. Activity
should pick up in the second half of 2003 to lift annual growth to a
modest expansion.
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