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Economic growth accelerates in third
quarter
Gross
domestic product (GDP) expanded 8.3% in the third quarter over the same
quarter 2003. The third quarter reading was 0.3 percentage points above
the preliminary reading based on the monthly indicator for economic
activity (EMAE, Estimador Mensual de Actividad Económica) and
confirmed that economic growth remained robust in spite of the higher
comparison base in the prior year, when the cyclical recovery was
already in full swing. In the second quarter 2004, the economy expanded
by 7.1% on an annual basis. Quarter-on-quarter data corroborate the
acceleration observed in the annual figures. In the third quarter, the
economy grew 2.88% in seasonally adjusted terms over the previous
quarter, which is more than triple the 0.77% figure observed in the
second quarter.
Healthy investment, consumption and
exports spur growth
The
continued strong growth in domestic demand and, to a lesser extent,
exports drove the improvement in the third quarter compared to the
preceding quarter. Total consumption growth added 1.4 percentage points
from 6.7% in the second quarter to 8.1% in the third. The improvement
was due to a pickup in private consumption, which accelerated from 8.3%
in the second quarter to 8.8% in the third. The pickup in government
consumption was even more pronounced, accelerating from a 0.8%
contraction in the second quarter to 4.8% growth in the third. Gross
fixed investment grew at a resilient 33.1%, which was slightly below the
robust 36.8% registered in the preceding quarter. The external sector
also developed positive in the third quarter. Exports of goods and
services grew at the fastest pace in more than six years (Q3: +9.2%
year-on-year; Q2: -0.2% yoy). Import growth also maintained a very
strong pace, as growth slowed only moderately from the 42.5% annual
expansion in the second quarter to 38.1% in the third.
Construction and commerce drive activity
Construction remained the strongest growing sector for the sixth
consecutive quarter. In the third quarter, the sector grew 26.1% over
the same quarter in the previous year. However, the sector experienced
a slowdown over the second quarter, when growth had reached 32.6%.
Commerce was the second strongest expanding sector with activity
accelerating from 11.8% growth in the second quarter compared to 13.6%
in the third. The strong pickup in domestic demand also bolstered the
transportation, storage and communications sector, where growth reached
11.8% in the third quarter. Adverse climatic conditions extended the
weak spell for the fishing sector, where activity was down 29.6% in the
third quarter compared to the same quarter in 2003.
Economy disappoints in October but upward
trend remains intact
In October,
economic activity increased 6.7% over the same month last year,
according to the EMAE. The actual reading was below expectations and
also below the 8.1% annual growth rate recorded in September. A
month-on-month comparison does not bear out the weaker reading.
According to seasonally adjusted data, the economy grew 0.75% over the
preceding month, following on a 0.59% monthly expansion in September.
The deceleration is an indication that the recovery of the economy is
drawing to an end, as the stronger comparison base last year kicks in.
The upward trend in the overall economy did not remain intact. The
annual average growth rate inched downward from 9.4% in September to
9.0%.
Unemployment drops to six-year low amid economic recovery
The
strong rebound in the domestic economy is improving employment
conditions notably. In the third quarter, urban unemployment dropped to
13.2% from 14.8% in the second quarter. The third quarter figure was
well below market expectations, which had anticipated unemployment to
remain unchanged at 14.8%. However, instead, unemployment dropped to
the lowest level observed since May 1998. The reason for the decrease
in the open unemployment rate was due to the healthy job growth, which
generated 184,000 new jobs, up from 146,000 created in the prior
quarter.
Consensus remains optimistic about economic prospects but moderation
seen
The
favourable international setting and the persistence of robust domestic
economic activity has prompted Consensus Forecast panellists to raise
the 2004 estimate upward by 0.3 percentage points to 7.8%, which is
above the
official
government’s forecast of 7.0%. Participants anticipate a notably
moderation in economic activity this year but have
lifted
the growth estimate for 2005 by 0.4 percentage points to 4.9%, which is
now above the 4.0% government forecast underlying the budget.
Current
account surplus narrows in third quarter as higher trade surplus drops
In the
third quarter, the current account balance recorded a surplus of US$ 533
million, equivalent to 2.4% of GDP. The surplus was significantly below
the US$ 1.6 billion surplus registered in the preceding quarter and also
well beneath the US$ 1.5 billion surplus observed in the third quarter
2003. With the services, income and transfers balance virtually
unchanged over last year, the lower surplus in the trade balance was
principally responsible for the narrowing in the current account
surplus. The trade surplus declined from US$ 4.0 billion in the third
quarter of 2003 to US$ 3.2 billion in the third quarter last year. The
annual current account surplus dropped from US$ 14.4 billion in the
second quarter to US$ 13.6 billion in the third. Consensus Forecast
panellists lowered their forecast for last year’s current account
surplus from last month’s US$ 4.5 billion to US$ 4.4 billion. This year
the surplus is anticipated to narrow further to US$ 2.8 billion, which
is down from the US$ 3.0 billion figure in last month’s Consensus
Forecast.
Currency
stability maintained throughout the year
In
December, the exchange rate depreciated 1.2% to close at 2.98 pesos to
the US$. The December depreciation was in contrast to a 1.1%
appreciation the prior month and reversed a trend of steady appreciation
observed since September. The December weakening brought the nominal
annual depreciation last year to 1.4%. Increased currency stability was
favoured significantly by the improved global demand, which has boosted
US$ earnings of exporters. In addition, the currency benefited from the
weakening of the US$ in international markets and subdued
foreign
currency demand from the government resulting from the delays in debt
restructuring.
The main
reason that the currency did not experience an appreciation similar to
other countries in Latin America is that the Central Bank made a clear
effort at intervening in the exchange rate market with purchases of up
to US$ 40 million daily. This year, the
currency is anticipated to depreciate by 2.3% to reach 3.05 pesos
to the US$ by year-end.
Consumer
prices rise amid healthy economic growth
In
December, consumer prices rose 0.84%, which was in line with market
expectation but significantly exceeded unchanged prices in November.
The price categories of recreation and other goods and services
accounted for the December spike, as prices on most other goods remained
subdued. As a result of the December reading, the annual inflation rate
ended at 6.1%, which was below the 7% to 11% target range underlying the
Central Bank’s monetary policy programme for this year. Nevertheless,
Consensus Forecast participants expect inflation to accelerate again
this year to 7.7%, which is up a 0.1 percentage point from last month’s
Consensus Forecast figure. The current Consensus Forecast figure is
still a notch short of the government budgeted inflation figure of 7.9%
and is within the Central Bank’s target range of 5% to 8% for 2005. |
