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Current
account deficit increases despite higher trade surplus
In the second quarter, the current account balance incurred a deficit of
US$ 239 million. The deficit was well above the US$ 71 million
observed in the first quarter and also exceeded the US$ 193 million
deficit in the second quarter last year. The deterioration over the
same period last year was mainly due to a higher deficit in investment
income, which in turn deteriorated amid higher revenues from foreign
businesses. This deficit was partially offset by an improvement in the
trade balance, which almost doubled from last year’s second quarter
surplus of US$ 205 million to US$ 404 million, as the strong global
economy boosted exports, which increased at a faster pace (+28.7% yoy)
than imports (+21.6% yoy). The financial account balance registered
a surplus of US$ 543 million in the second quarter, which was sufficient
to cover the current account gap and contrasted the US$ 405 million
shortfall recorded in the same period last year. The improvement was
concentrated in the public sector, which recorded net inflows of US$ 265
million compared to US$ 320 million outflows in the second quarter 2003.
In addition, short-term capital reverted from the US$ 99 million gap last
year to a US$ 228 million surplus this year. Consensus Forecast
participants see the current account deficit dropping from the current
annual US$ 664 million to US$ 551 by the end of the year.
Government
incurs surplus in second quarter amid higher tax take
In the second quarter, the non-financial public sector incurred a surplus
of 1.0% of GDP, compared with a deficit of 0.8% of GDP for the same period
last year. Public accounts improved mainly due to higher tax
revenues, lower central government non-financial expenses and increased
surpluses from state-owned enterprises. Tax revenues advanced almost
a full percentage point from 12.3% of GDP in the second quarter 2003 to
13.2% of GDP in the second quarter this year. The improvement was
the result of higher tax collection from the value-added tax. In the
recently revised Multi-annual Macro-economic Plan (2005-2007), the
government confirmed its previous deficit target for this year’s
non-financial public sector of 1.4% of GDP. For next year, the
government lowered its deficit target to 1.0% of GDP. Consensus
Forecast panellists are more pessimistic: for 2004 they expect a fiscal
deficit equivalent to 1.6% of GDP and are not as optimistic about the
government’s ability to lower the deficit next year, expecting the
non-financial public sector shortfall to remain at 1.6% of GDP.
Inflation
spikes further in July
In August, consumer prices remained virtually unchanged. The reading
was well below last month’s Consensus, which had expected prices to
increase by 0.18%. At the same time, the reading was significantly
below the 0.19% price rise observed in July. Higher prices for
housing, fuels and electricity were offset by lower prices for food and
beverages. As a result of the moderate price development in August,
annual headline inflation remained unchanged at 4.6%, putting an end to
the rapid rise registered since April, when inflation was still at 2.8%.
Thus, inflation remains well clear of the Central Bank’s 2.5% target and
is currently even above the 1% tolerance margin. The Central Bank
projects that inflation will drop in the coming months to finish the year
close to the upper end of the tolerance margin. This is also in line
with the government, which lifted its year-end inflation forecast from the
previous 2.5% forecast to 3.5%. In 2005, monetary authorities hope
to return to the centre of the target range, in line with the government
projection. Consensus Forecast participants have reflected the
recent price pressures by raising their year-end 2004 inflation forecast
another notch over last month to 3.0%, well above the Central Bank’s
target but just at the border of the tolerance margin.
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