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The four-year economic downturn appears to
have bottomed out. Nevertheless, the path to recovery remains long, as
domestic demand remains depressed by financial system restrictions and
exports are not picking up notably yet. Meanwhile, the trend of
decelerating inflation remains illusory, as negotiations over important
public services price hikes continue to be postponed. |
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Recession eases mildly in
second quarter
In the second quarter, gross domestic product (GDP) contracted 13.6%
over the same quarter last year. The second quarter figure was above
expectations of 15.4% in last month’s publication and represents an
improvement from the 16.3% contraction observed in the first quarter.
Furthermore, according to seasonally adjusted data, GDP actually rose
0.9% in the second quarter over the previous quarter – the first
increase in two years.
Agriculture only sector to expand in second
quarter
Virtually all sectors remained in recession with the exception of
agriculture, where economic activity rose 4.4% (Q1: -4.9%) in the second
quarter over the same quarter last year. The strongest declines in
output were observed in construction (Q2 -41.2%; Q1: -41.0%), financial
services (Q2: -23.7%, Q1: -24.2%) and wholesale/retail trade (Q2:
-22.6%, Q1: -25.5%).
Exports not yet pulling economy free from
recession
The devastating situation of the financial services sector and limited
access to savings accounts is also feeding through to consumption and
investment. Consumption declined 14.7% in the second quarter over the
same quarter last year but improved over the first quarter 17.1%
contraction. Investment also improved but less notably, moving from a
45.4% annual contraction in the first to a 43.0% decline in the second
quarter. Despite the massive depreciation of the Argentine peso, exports
have not yet rebounded sufficiently to compensate for the massive
erosion of domestic demand and to pull the economy free from the worst
recession of the past decades. In fact, according to national accounts
data, exports declined 0.8% and thus deteriorated compared to the first
quarter growth of 5.6%, while depressed domestic demand curtailed
imports, which were down a staggering 56.7% over the same quarter last
year (Q1: -57.4%).
Recession likely to ease further in third
quarter
More recent data suggest that the current recession is likely to ease
further in the third quarter. According to INDEC industrial production
data, output declined 7.5% in August over the same month last year. The
August figure was a significant improvement over the 11.4% output
contraction year-on-year (yoy) in July and represented the first time in
a year that output did not decline at a double digit pace. On a
seasonally adjusted basis, industrial production actually increased 4.7%
over the previous month. Similarly, output in the construction industry,
one of the most affected sectors in the current recession, dropped 28.2%
in August over the same month last year. This is a marked improvement
from the 37.2% yoy decline in July and according to seasonally adjusted
data, construction output even increased 1.5% in August over the
previous month.
Significant recovery not expected before second
half 2003
Despite some improvement, the economy continues to be mired in deep
recession. Nevertheless, the government expects the recession to have
bottomed out with the 14.9% annual decline in activity in the first half
of this year and anticipates a gradual improvement in the second half,
with activity declining 11% for the year as whole. Consensus Forecast
participants also anticipate the recession to ease in the second half of
the year but see annual economic activity declining at a more pronounced
rate this year. Furthermore, positive growth rates are not anticipated
to emerge until the second quarter next year. Consequently, the moderate
first half 2003 will offset a more pronounced recovery in the second
half and annual growth will remain contained well below the government’s
3% growth projection. While meagre, the growth will be welcomed, as it
will represent the first expansion after four consecutive years of
contraction, which have brought down output levels by almost one
quarter.
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