Argentina - Economic Briefing November 2004

 Economic Activity Defies Expected Slowdown (continued)

Trade surplus narrows in third quarter amid strong import growth
In the third quarter, the trade balance recorded a surplus of US$ 2.9 billion.  The surplus was significantly below the US$ 3.9 billion surplus registered in the preceding quarter and also came in below the US$ 3.8 billion surplus observed in the third quarter last year.  The narrowing in the trade surplus over last year was the result of surging imports, amid the robust pickup in domestic demand.  In the third quarter, imports reached US$ 6.0 billion, which was up 61.4% over the same quarter last year.  Robust growth in capital goods imports accounted for the lion share of the third quarter expansion, as growth was up 122.2% over the same quarter in 2003.  Similarly, export growth proceeded along a favourable but less dynamic growth trajectory.  In the third quarter, exports reached US$ 8.9 billion, which was 18.0% above the third quarter last year.  All export sub-sectors were well into double-digit growth territory with industrial manufactured goods leading the way with 23.3% growth over the same quarter last year.  As a result of the third quarter reading, the annual trade surplus narrowed to US$ 12.6 billion, which was down from the US$ 13.5 billion figure registered in the prior quarter.  Consensus Forecast participants expect the trade balance to remain virtually unchanged through the end of the year and to reach US$ 13.4 billion.  Next year, the surplus in the trade balance should narrow further to US$ 11.9 billion, as both export and import growth continue to moderate.

Fiscal balances strong despite narrowing primary surplus
In the third quarter, the primary fiscal surplus reached US$ 3.4 billion pesos (US$ 1.1 billion or 0.8% of GDP).  The third quarter result was well below the 6.7 billion peso (US$ 2.3 billion or 1.4% of GDP) surplus registered the previous quarter but well ahead of the modest 382 million pesos (US$ 130 million or 0.1% of GDP) surplus in the same quarter last year.  A drop in revenues attributed to the nominal decline in tax receipts (-17.5% over Q2) was responsible for the narrowing in the fiscal surplus, as expenditures dropped 1.0% over the previous quarter.  As a result of the third quarter reading, the accumulated primary surplus for the first nine months of the year reached 12.9 billion pesos (US$ 4.2 billion), which was well ahead of the annual primary surplus target of 10.0 billion pesos (3.0% of GDP) agreed to with the International Monetary Fund (IMF) under the terms of the stand-by agreement.  The hold on debt servicing resulting from the default on current sovereign debt obligations is a principal factor behind the current strength of the fiscal accounts.  In addition, strong economic activity is also bolstering income.  The government is confident that a strong primary surplus of 3.0% of GDP of this year can be sustained next year.  Consensus Forecast participants expect fiscal accounts to remain healthy through the end of the year and see the non-financial public sector balance in a surplus of 2.3% of GDP this year.  Moreover, panellists expect the fiscal balance to remain in a surplus of 1.3% of GDP next year.