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Economic activity is recovering at a robust
pace across all sectors of the economy. The rebound is the result of a
strong surge in investment and favourable developments in the external
sector, which is being favoured by the more competitive exchange rate.
However, consumption remains subdued, as high unemployment, tight credit
and a deterioration in real incomes are containing a more pronounced
pick-up. |
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Economy leaves recession behind with strong first quarter growth
In the first quarter, gross domestic product (GDP) expanded 5.4% over
the same quarter last year. The first quarter GDP figure exceeded market
expectations, which had the economy growing 4.4% over the same period,
and represented the first annual expansion since the final quarter of
1998. In the last quarter of 2002, the economy contracted 3.4%.
Seasonally adjusted data confirmed the improved economic setting, as
activity was up 2.4% over the final quarter of last year.
Investment
drives domestic demand recovery
Investment grew a robust 20.6% in the first quarter over the same
quarter last year, the first positive showing since the third quarter of
1998 and a strong rebound from the 17.9% contraction observed in the
final quarter 2002. Consumption also recovered but the moderate 2.0%
growth rate (Q4 2002: -6.1% yoy) observed in the first quarter
illustrates that tight credit conditions, deteriorating real incomes and
high unemployment continue to overshadow a more robust recovery. The
more competitive exchange rate bolstered the external sector, as exports
rose 6.4% in the first quarter over the same quarter last year, which
was up from the 5.7% pace registered in the previous quarter. Import
growth also experienced a strong boost with growth for the same period
reaching 15.9% (Q4 2002: -31.5%).
Healthy growth in virtually all sectors
Aside from the struggling financial sector, where activity dropped 13.7%
in the first quarter over the same quarter last year and agriculture
(-1.9% year-on-year), all sectors recovered. Manufacturing and
construction constituted the strongest growing sectors. Manufacturing
expanded by 18.4%, following on 2.4% growth in the fourth quarter and
construction increased by 17.2% after a 16.4% contraction in Q4. The
currency depreciation has reactivated tourism, which bolstered activity
in hotels and restaurants. The sector expanded at a robust 11.7% pace in
the first quarter, following on a 2.5% drop in activity in the fourth
quarter of 2002.
Economic recovery enduring in second quarter
More recent data releases suggest that economic growth is likely to have
remained robust in the second quarter of the year. In April, the monthly
indicator for economic activity (IMAE, Estimador Mensual de Actividad
Económica) rose 6.9% over the same month last year – a notch ahead of
the 6.8% growth rate observed in the previous month. The April figure
represented the fifth consecutive monthly advance. However, in part the
April data were inflated by seasonal factors. In seasonally adjusted
terms, economic activity was unchanged compared to the 0.3% increase
experienced in March, which indicates that the recovery is still
erratic. Nevertheless, the strong first quarter economic performance has
prompted Consensus participants to revise their growth forecast for this
year upward yet again. As a result, GDP is now expected to expand
strongly this year, with the forecast up 0.3 percentage points from last
month. However, the strong growth figure is not only reflective of the
pickup in economic activity but also is bolstered by a very weak
comparison base last year. Even though participants continue to view
growth prospects favourably next year, the new government’s weak
electoral mandate and prospects for a strong opposition in the
legislature following the 26 October elections do not bode well for
needed economic reforms. As a result, economic growth is not only likely
to remain below potential but to actually decelerate next year, which is
down a 0.1 percentage point from last month’s forecast. |
