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Economic activity continues to remain
depressed, as rising unemployment, growing inflationary pressures,
currency depreciation, tight credit and banking restrictions are choking
off the domestic economy. Meanwhile, any pickup in the export sector is
stifled by current financing constraints and the regional economic
deceleration, which is offsetting competitiveness gained by the currency
devaluation. |
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Consumption may suffer from
record unemployment
The current economic depression has taken its toll on employment, which
according to the National Statistical Institute (INDEC), rose to a
historical record 21.5% in May from 18.3% in October 2001, the last
official unemployment report. An additional 12.7% of the labour force
works 35 hours or less a week and is seeking more permanent employment
with stable income. The survey further indicates that 25.7% of the
national workforce earns less than 200 pesos monthly. The current
recession may exacerbate the dire employment conditions prevailing in
Argentina. High unemployment and lower real salaries will undermine
domestic demand further. According to INDEC, annual supermarket sales
declined 3.9% in June over the same month last year. Similarly, public
services consumption remained depressed, dropping 4.0% in June over the
previous month, which brought the annual variation down to 9.6%. A lack
of credit, weaker currency, banking restrictions and high unemployment
are likely to remain key impediments to any consumption recovery this
year. Participants anticipate consumption to again drop at a double
digit pace. Furthermore, consumption is expected to remain in negative
territory next year.
Uncertainty whether economy has reached trough
On the supply side of the economy, recent economic data releases
indicate that activity continued to plummet in the second quarter of the
year. According to INDEC, industrial production entered negative
territory again in June with a 1.4% monthly decline. Industrial output
had experienced three consecutive months of growth in the period from
March through May, as some export-oriented industries were bolstered by
the more competitive exchange rate. However, compared to the output
levels of last year, the sector remains deeply entrenched in recession
and the annual contraction rate deteriorated further from 14.8% in May
to 15.0% in June. Similarly, construction activity slowed again. Even
though construction output grew 0.9% over May, the monthly growth rate
was down from the 3.2% growth experienced in May. As a result, annual
construction activity remains 34.0% below the same levels last year.
Both construction and industrial data show that the economy still
remains in a trough and that recovery is slow to come, as the financial
system restrictions, the absence of credit and default continue to
plague businesses. The general index of activity ((IGA, Índice General
de Actividad) elaborated by Orlando J. Ferreres & Asociados S.A.
confirms that the current depression deepened in the second quarter of
the year. The IGA shows that the economy contracted 13.0% in the second
quarter over the same quarter last year, which was virtually unchanged
from the 13.1% drop the IGA experienced in the first quarter.
Similarly, Consensus panellists expect economic activity to have
remained depressed in the first half of the year, with scattered
devaluation induced pickups completely offset by deep recession
experienced in most other sectors of the economy. Participants
anticipate gross domestic product (GDP) to have contracted 15.4% in the
second quarter over the same quarter last year. Activity is expected to
pick up but the economy will remain in recession through the end of the
year. Furthermore, the economy is anticipated to enter positive
territory at the end of the second quarter of 2003 but growth will
remain modest with GDP.
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