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The economy continues to proceed along a
robust recovery path spurred on by a healthy export sector. Investment
is also recovering, whereas consumption remains subdued. A more
sustainable growth trajectory, however, is unlikely to materialize until
the government finally negotiates a longer term programme with the IMF
and proceeds with needed structural reforms. |
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Economic rebound robust amid export boost and rising import-substitution
but shadows remain
Recent data indicate that the economy continued to proceed along a
favourable growth trajectory in the second quarter of this year. In May,
the monthly indicator for economic activity (IMAE, Estimador Mensual de
Actividad Económica) rose 7.1% over the same month last year – a notch
above the 6.9% growth rate observed in the previous month. The May
figure was the sixth consecutive monthly rise in economic activity.
However, as in previous months, the May data was partly inflated by
seasonal factors. In seasonally adjusted terms, economic growth rose
0.38% over the previous month, compared to the 0.38% increase
experienced in April. The current growth course indicates that the
sustainability of the current economic rebound is still uncertain, as
the global economy is progressing less favourably than expected and
investment is likely to rebound fully only once the government has
concluded IMF negotiations for a multi-year programme, which would also
provide for a more stable macroeconomic framework for a consumption
rebound.
The real wage deterioration experienced by the pronounced currency
depreciation last year, along with high unemployment and tight credit
conditions continues to keep recovery in private consumption at bay.
According to the National Statistical Institute (INDEC), real
supermarket sales declined 6.9% in May over the same month last year, an
improvement from the 12.3% drop observed in the previous month.
Furthermore, in July, the University Torcuato di Tella's (UTDT) consumer
confidence index (ICC) inched up a very moderate 0.6%, following strong
double digit improvements in May and June.
Investment seems to have remained strong in the second quarter of the
year. According to INDEC, construction activity remained buoyant. The
key construction activity indicator (ISAC, Indicador Sintético de la
Actividad de la Construcción), rose 32.9% in June over the same month
last year, which was down from the 35.3% pace observed the previous
month. Growth was strong across all sectors, with housing construction
rising at the fastest pace (+37.3% year-on-year), just above
infrastructure and road projects, where activity increased 24.7% and
23.3% respectively.
Finally, export growth remains robust, as last year’s depreciation in
the currency continues to provide the external sector with a competitive
edge. In June, exports were up 65.6% over the same month last year,
which was up from 25.6% observed in the previous month. Import growth,
on the other hand remained more subdued with growth reaching 13.4% in
June over the same month last year, up modestly from 13.0% in the prior
month. As a result of the robust export growth, the annual trade surplus
continued to widen in June to US$ 16.9 billion from US$ 16.7 billion in
May.
Participants are confident the strong growth trajectory will persist
through the end of the year but increasingly voice concerns that the
pace may slow toward the beginning of next year, as this year’s currency
strengthening feeds through to slower export growth and an absence of
structural reform postpones a healthier recovery in domestic demand.
Consensus Forecast panellists see gross domestic product (GDP) to have
expanded by 4.9% in the second quarter over the same quarter last year
and expect growth to pickup the pace to 5.6% in the third and 5.4% in
the fourth quarter. The Consensus participants believe that the strong
growth pace through the end of this year will come to a halt in the
first quarter of next year and that the economy will experience further
slowing throughout 2004. As a result, GDP growth is expected to
decelerate from this year’s strong 5.6% pace to 4.0% next year.
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