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The
economy continues to proceed along a strong recovery path, driven by a
bouyant external sector and rising domestic demand. However, the
public utility tariff freeze adopted by the government has forced energy
companies to cut back investment. The resulting investment
shortfall has created a disequilibrium between stagnant electricity
supply and blooming domestic demand. So far, the country has
averted direct rationing by importing energy from neighbouring countries
and cancelling existing export agreements. However, if officials
have to turn to energy rationing, the current robust recovery could come
to an abrupt end.. |
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Government
confirms robust growth expansion for last year
In
the final quarter of last year, gross domestic product (GDP) grew 11.3%
over the same quarter the previous year.
The fourth quarter figure was above the already strong 10.2% expansion
registered in the third quarter and continued the acceleration in
economic growth throughout the year as the country recovered from the
devastating 2002 recession..
Investment
spikes amid improved export setting and lower interest rates
The
robust growth in domestic demand was the key driver behind the
acceleration in growth in the final quarter, as activity rose 15.0% over
the same quarter in 2002, which was up from the 13.2% expansion in the
prior quarter. Ballooning growth in investment of 48.8% in the
fourth quarter (Q3 03: +44.9% yoy) was the key factor behind the growth
spurt in domestic demand. Consumption also recovered notably in
the fourth quarter, albeit at a lesser 9.7% rate (Q3 03: +8.8%
year-on-year). Export growth accelerated to 7.4% from 5.4% in the
previous quarter. Import growth remained extremely strong amid the
pronounced rebound in domestic demand and the weak comparison base with
an expansion of 52.0% over the same quarter in 2002, which was up from
46.2% growth in the third quarter.
Construction
boom bolsters overall growth
In
the fourth quarter of 2003, growth was strongest in the construction
sector, where activity increased 45.8% over the same quarter the prior
year (Q3: +42.8% yoy). The construction pick up was favoured by
significantly lower interest rates and an improved credit setting.
Manufacturing increased by 16.2%, wholesale and retail trade 16.1% along
with transport, storage and communication, which added +12.3%. The
only sector to remain in negative territory was financial services,
where activity dropped 17.0% over the same quarter the previous year, as
banks have been slow to recover from the adverse repercussions of the
2002 devaluation.
Growth
strong but slowing
More
recent data suggest that the momentum observed in economic activity in
the fourth quarter of last year carried over into the first month of
this year. In January, the monthly indicator for economic activity
(IMAE, Estimador
Mensual de Actividad Económica) was up 9.9% over the same month
last year, which represented only a small moderation from the 11.5%
growth rate reported for December. Moreover, in seasonally
adjusted terms, the economy expanded 1.8% over December, which was much
stronger than the December reading when the economy remained flat.
Outlook
improves
As
a result of the robust fourth quarter GDP expansion, economic activity
for the full year rose 8.7% in 2003, which was well above the
government’s official 7.0% growth figure and a notch above the 8.4%
Consensus Forecast estimate from last month. Even though last
year’s economic recovery was very robust and broad-based, the
impressive growth rate was achieved on the back of a very weak
comparison base following a four year recession. Moreover, even
with these stellar growth rates, GDP is not yet close to reaching
pre-crisis levels and at the end of 2003 was less than half the level
observed in 1998. A series of economic developments this year is
likely to impede a repetition of last year’s strong growth performance
as uncertainty about the government’s economic policy priorities
lingers, the financial system remains fragile and the bond restructuring
is delayed. As a result, participants see growth slowing this year
to a more moderate but healthy 6.5% pace, which now exceeds the
government’s 6.0% estimate.
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