|
Energy
shortages overshadow economic rebound
The
government-imposed public tariff freeze throughout most of last year
forced utility companies to cut back investment notably. The
combination of lower investment and booming economic growth has led to the
emergence of energy shortages nationwide and could force the government to
implement energy rationing. In fact, in early April the government
lowered the electricity voltage by 5% to 208 volts in an effort to save
energy. Authorities are currently also exploring measures to import
fuels for electricity generation from other Latin American countries, such
as Venezuela and Brazil. In addition, existing exports of natural
gas to Chile and electricity to Uruguay have been cut, while households
and companies are being asked to voluntarily cut back consumption.
The government hopes to avert a more comprehensive rationing programme
since this could bring the current rebound in economic activity to an
abrupt halt. A similar energy shortage in Brazil three years ago,
forced the government to implement energy rationing for large consumers in
industry, which brought output to a virtual standstill and forced the
economy quickly into recession.
Consumer
prices remain well behaved despite tariff increases
In
March, consumer prices rose 0.60%, which was in line with the Consensus
estimate and was the highest monthly increase observed since January last
year. Despite the higher monthly increase, annual inflation remained
unchanged at 2.3%. The gas and electricity price increases adopted
in February were not
as noticeable in wholesale price developments as anticipated. In
March, wholesale prices rose 0.56%, which was less than half the 1.39%
increase observed in the prior month but raised the annual variation in
wholesale prices to 3.5% from 2.2% in February. Given the robust
acceleration in economic activity, retailers are likely to begin to pass
through higher prices to consumers throughout the year. As a result,
Consensus Forecast participants anticipate annual inflation to rise to
6.6% by the end of this year. However, the Consensus Forecast figure
reflects improved inflationary expectations as it was revised downward by
0.6 percentage points from last month’s forecast. More accelerated
currency depreciation and continued healthy economic growth will prompt a
moderate increase in annual inflation next year, with consumer prices seen
as rising 6.9% by the Consensus.
Current
account surplus narrowed last year amid strong import growth
In
the fourth quarter, the current account balance registered a US$ 1.0
billion surplus. The fourth quarter figure was below the US$ 1.7
billion surplus registered in the third quarter and well below the US$ 2.5
billion surplus recorded in the same period the prior year. As a
result, the current account surplus for
the full year dropped from US$ 9.6 billion in 2002 to US$ 7.9 billion in
2003, which was well below market expectations. The lower trade
balance surplus accounted for the narrowing in the current account surplus,
mitigated by a higher transfers balance surplus. The trade surplus
dropped, as exports grew at a lesser (+12.5%) pace than imports (+35.2%),
which were bolstered by the strong growth spurt in domestic demand.
A persistence of last year’s trend of robust but less pronounced export
and higher import growth will prompt a further narrowing in the trade
surplus. As a result, the current account surplus will narrow
further to US$ 6.8 billion by the end of this year.
Capital
account deficit narrows
In
the fourth quarter, the capital account balance incurred a deficit of US$
107 million, following on a virtually balanced capital account in the
third quarter and a US$ 810 million deficit recorded for the same period
the prior year. For the full year, the capital account deficit
reached US$ 2.9 billion, which was more than compensated by the current
account surplus. Moreover, the 2003 deficit was well short of the
US$ 12.5 billion deficit recorded in 2002. The narrowing in the
capital account deficit towards the end of 2003 reflects lower outflows
from the financial sector and a strong increase in inflows to the
non-financial private sector. |
