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Economy picks up further steam in the third quarter
Gross domestic product (GDP) grew 9.8% in the third quarter of 2003
compared to the same quarter 2002. The third quarter figure was up from
the 7.7% annual expansion observed in the second quarter. In fact, the
expansion represented the strongest growth observed in ten years and was
well above market expectations. In seasonally adjusted terms, GDP rose
2.8% over the prior quarter, up from the 2.0% pick up in the second
quarter.
Strong
investment bolsters growth
The robust growth experienced by investment activities in the second
quarter (+33.1% year-on-year), accelerated to 42.7% year-on-year growth
in the third quarter. Similarly, growth in consumption picked up from
6.4% in the second to 8.9% in the third quarter. Household consumption
growth was up 3.5 percentage points over the previous quarter, while
public consumption actually dropped 1.8 percentage points over the
second quarter. Export growth slowed, amid the strengthening of the
currency observed in the first nine months of the year. Exports grew
just 4.3% in the third quarter over the same quarter 2002, which was
down from 7.9% growth in the second quarter. The pick up in investment
bolstered imports, which rose 46.7% in the third quarter, up from the
robust 36.2% pace in the prior quarter. However, even with these stellar
growth rates, imports have not yet reached pre-crisis levels. In 2003,
the level of imports was just half the import level in 1998.
Construction and manufacturing provide backbone for growth
Aside from the financial sector, where activity remained depressed with
double digit contraction, all sectors experienced positive growth.
Construction experienced the strongest growth in the third quarter,
expanding 40.3% after 29.5% growth in the second quarter. Manufacturing
registered a 16.9% expansion above the second quarter reading of 12.6%.
Compared to the prior quarter, growth in the fishing sector accelerated
16.7 percentage points to 6.3%. Growth in the agricultural sector, on
the other hand, dropped by 8.2 percentage points to 3.8%.
Healthy growth pace persisted in the final quarter
More recent data suggest that the momentum observed in economic activity
in the third quarter was carried over into the final quarter 2003.. In
October, the monthly indicator for economic activity (IMAE, Estimador
Mensual de Actividad Económica) was up 10.4% over the same month last
year, which represented only a moderate deceleration from the 10.9%
growth rate reported for September. In seasonally adjusted terms, the
economy expanded 0.5% over September. Industry remains the driving force
behind the current economic rebound. In November, industrial production
rose 18.4% over November 2002, which was up from the already robust
16.3% spike in October. Printing and publishing output mushroomed by
49.9% and non-metal mineral production jumped 31.5%. The lowest output
growth was experienced by the tobacco and oil processing industries,
which grew 4.5% and 5.5% respectively.
Private consumption growth bolstered by stronger exchange rate and
declining unemployment
Similarly, supermarket sales registered a boost in October with growth
reaching 7.5% over October 2002, up from the modest 1.1% uptick observed
the prior month. Tight credit conditions are only gradually easing.
However, the declining unemployment and a strengthening exchange rate
are serving to bolster domestic consumption. Unemployment dropped to
16.3% in the third quarter from 17.8% in the second. Even though
unemployment remains high, the current rate represents a notable
improvement compared to the 20.8% figure observed at the end of 2002.
Investment drive likely to have continued through end of year
Trade data show that investment is likely to have continued to grow
strongly in the final quarter of the year, as capital goods imports rose
12.0% in November over the same month last year. The November figure
represented a pick up when compared to the previous month’s growth of
8.6%.
Outlook upgraded to reflect endurance of economic expansion
Consensus Forecast participants have revised their growth estimates for
2003 upward yet again to reflect the continued rally in economic
activity at the end of 2003. This month, GDP is anticipated to have
expanded 7.3%, which is up 0.8 percentage points from last month’s
Consensus Forecast and represents the fourteenth consecutive monthly
upward revision to the growth forecast. Similarly, panellists have also
revised the growth estimate for this year upward to 5.1% from 4.7% last
month, anticipating the current expansion to moderate only gradually
throughout the year, as domestic demand remains healthy and export
growth robust. Lingering uncertainty about the government’s economic
policy priorities, financial system fragility and delays in the bond
restructuring will be key impediments to a more pronounced growth
trajectory this year.
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