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Unemployment
declining gradually
Employment
data for November point towards an incipient recovery in domestic demand
at the end of the year.
According to the National Statistical Institute (INE), open
unemployment dropped from 16.7% in October to 15.4% in November.
The November figure confirmed the slight improvement in
unemployment observed since February 2003 and was even below the 15.7%
unemployment rate registered in November of 2002.
The combination of declining unemployment and improvement in the
domestic lending environment should help bolster private consumption.
Recession
endures through end of 2003 but easing sets tone for recovery this year
The
Central Bank estimates that gross domestic product (GDP) contracted
between 10.0% and 12.0% last year, which is roughly on target with the
Consensus estimate of a 10.8% drop in economic activity. Furthermore,
participants expect the oil price to decline this year but
increased oil output should help maintain the oil economy stable
throughout 2004. In addition, the non-oil sector of the economy is
likely to help bolster economic performance further. As a result,
participants expect the GDP to grow 7.0% this year. This month’s
figure is 0.3 percentage points better than last month and confirms a
healthy rebound in output this year. This year’s output growth
level, however, is also bolstered by the very weak comparison base set by
last year’s recession and implies that the uncertain political setting
and lacking economic policy transparency are likely to avert a more
pronounced recovery.
Inflation
high but contained by price and exchange controls
In
December, consumer prices rose 1.8%, which was up strongly from the 0.9%
price variation observed in the prior month. Household services and
food/non-alcoholic beverage prices experienced the strongest monthly
increases. On the low end, education and health prices exhibited the
lowest monthly variation. As a result of the December price rise,
annual inflation rose from 26.1% in November to 27.1% in December.
As in prior months, wholesale price experienced a more pronounced increase,
rising 2.5% in December, which was up from the already high 2.2% observed
in the prior month. As a result, the annual variation in wholesale
prices rose to 48.9%. The ongoing gap between wholesale and consumer
prices indicates that inflationary pressures remain, as wholesalers
continue to be unable to transfer higher prices to consumers in light of
the dire downturn in domestic demand and government-imposed price
controls. In fact, the Central Bank reports that prices subject to
the government imposed controls rose just 17.9%, compared to 38.4% for
consumer prices determined by the market. The annual inflation rate
was well below the government’s official year-end estimate of 35% to 36%
but was just a percentage point notch below last month’s Consensus
figure. Participants believe that the currency will be devaluated
this year, which would exert upward pressure on consumer prices, even more
so since the economy is also anticipated to recover. Thus, Consensus
Forecast participants expect inflation to rise this year to 29.8%. |
