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The trough of the economic recession has
been left behind. However, so far, only the external sector is showing
signs of a recovery with domestic demand remaining in deep recession.
Even though the 27 April elections are rapidly approaching, no clear
favourites are emerging in the presidential contest, as voters remain
dissatisfied with the selection of existing candidates. |
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Economy remains in deep recession but downturn
easing
In the third quarter, gross domestic product (GDP) contracted 10.1%
compared to the same quarter in 2001, which was a slight improvement
over the second quarter, when GDP declined 13.5%. The third quarter
figure was also above market expectations of 12.0% and confirmed that
the economy is moving out of the trough of one of its worst recessions
in history. In seasonally adjusted terms, the economy picked up 0.2%
over the second quarter, which was down a notch from the 0.8% pickup
registered in the second quarter.
All economic sectors in negative territory
Despite these first signs of a tentative recovery, all sectors remained
in deep recession on year-on-year comparison basis. The strongest
declines in output over the same quarter in 2001 were observed in
construction (Q3: -36.4% year-on-year; Q2: -41.0% yoy), fishing (Q3:
-30.1% yoy; Q2: -3.7% yoy) and wholesale/retail trade (Q3: -17.5% yoy;
Q2: -22.6% yoy). Meanwhile, the ‘best’ performing sectors were
electricity/gas/water and agriculture/livestock/hunting, where activity
was down 2.8% (Q2: -5.1% yoy) and 3.3% (Q2: +4.5% yoy) respectively.
Exports grow as consumption and investment
activity still in slump
The adverse credit setting, a strongly depreciated currency and high
interest rates, continue to stifle domestic demand, which dropped 13.6%
in the third quarter over the same quarter last year (Q2: -19.4% yoy).
The strong 37.5% (Q2: -43.0% yoy) contraction in investment was the key
driver behind the third quarter decline in domestic demand, as
consumption dropped “only” 12.0% for the same period (Q2: -15.1% yoy)
and exports even expanded by 2.7% (Q2: -1.6% yoy). Demand for imports
remained in negative territory with a 50.0% contraction (Q2: -56.0% yoy).
More recent data show that the easing of recession persisted into the
fourth quarter. According to INDEC’s monthly indicator for economic
activity (IMAE, Estimador Mensual de Actividad Económica), the economy
declined 6.7% in October over the same month the year before, which
represents an improvement compared to the 8.0% contraction experienced
in September. In seasonally adjusted terms, economic activity even grew
0.7% over September.
This month’s Consensus reflects improved market sentiment following more
recent hopeful signs in economic indicators. Participants expect
recession to have eased further in the fourth quarter, with economic
activity dropping 6.7% over the same quarter in 2001. As a result, the
annual contraction last year is anticipated to have reached 11.4%, which
is up 0.8 percentage points from last month. Furthermore, the economy is
now anticipated to grow in the first quarter of this year and is not
seen to remain in recession through the first half, as had been expected
by the market in previous months. Thus, the outlook for this year has
also been revised upward, with GDP growth now expected to reach 2.8%,
which is up 0.9 percentage points from last month but remains slightly
below the government’s 3% estimate.
Inflation slows notably amid public service
tariff and currency stability
In December, consumer prices rose 0.19%, down from 0.55% in November and
the lowest monthly rate observed since the devaluation of the peso in
January 2002. As a result of the low December increase, the annual
inflation rate rose only moderately to 41.0% from 40.6% in the previous
month. While the slump in domestic demand and increased currency
stability is serving to constrain a more pronounced pick up in prices,
continued government decreed caps on public service tariffs have also
managed to suppress a more pronounced surge in inflation. Meanwhile,
monthly wholesale prices declined 0.3% in December, the second
consecutive decline in wholesale prices since December 2001. Even though
the December figure was down substantially from the 1.7% monthly drop
registered in November, the figure confirmed that prices are beginning
to stabilise. Nevertheless, the annual wholesale price increase, which
dropped to 118.2% from 118.4% in November, remains well above the
consumer price figure and indicates that hidden inflationary pressures
persist. |
