Argentina - Economic Briefing June 2004

Government Improves Restructuring Offer Amid Healthy Economy (continued)

Private consumption remains robust amid lower unemployment and improved credit setting
Real supermarket sales rose 5.8% in March over the same month last year.  The March figure was well below the 14.9% expansion the prior month but confirmed a strong recovery in the first quarter of this year.  In fact, supermarket sales rose 9.8% in the first quarter over the same quarter last year, which was up from the 5.8% expansion in the final quarter of last year.  Similarly, public services consumption rose 21.7% in March over the same month last year, which was up from the 19.0% expansion in February. 

The current private consumption rebound has been bolstered by the rise in real incomes resulting from the currency appreciation last year but also by declining unemployment.  According to the most recent INDEC data, unemployment reached 14.5% in December last year, which was down from 20.8% for the same period the prior year.  More recent indicators from the Ministry of Economy show that the total number of jobs in the economy increased 7.4% in February over the same month in 2003.  The February figure was down moderately from the 8.2% figure observed the prior month but confirmed the improving trend observed since February 2003.  The number of jobs increased notably in the construction and manufacturing industry, where job growth reached 37.4% and 10.4% in February over the same month last year.  In addition, data from the Ministry of Economy show that credit conditions are improving.  In March, loans to the non-financial private sector rose 0.1% over the same month last year – the first positive reading since July 1999 - and in April growth accelerated further to 2.8%.

Outlook overshadowed by energy shortages
Consensus Forecast participants expect the current energy shortages to make a dent in the robust growth trajectory of the economy this year but growth is anticipated to remain healthy.  The Consensus sees GDP expanding 7.0% this year, which is up 0.2 percentage points from last month’s forecast.  The current Consensus Forecast figure remains well above the government’s conservative 5.5% estimate but is still a full percentage point below the more optimistic 8.0% Central Bank forecast.  The stronger comparison base this year is likely to be reflected in further growth moderation in 2005, as the economy is anticipated to expand at a lesser 3.8%.