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Government begins debt restructuring
On 14
January, the Argentine government launched its debt swap to restructure
US$ 102.6 billion in outstanding sovereign debt with US$ 43.2 billion in
new bonds. The government has been in default on the outstanding bonds
since December 2001. The deadline for the response for bondholders to
the swap is set February 25. Under the terms of the offer, the
government will pay back 30 cents on the US$ (including past due
interest). Officials have already reached an agreement with local
institutional investors who hold approximately 27% of the securities and
large institutional funds with holdings over 60% are also likely to
proceed with the swap. The balance of smaller investors, who are
represented by the Global Committee of Argentina Bondholders (GCAB) have
been the most vociferous opponents of the swap proposal. The GCAP
argues that a government failure to receive in excess of an 80%
acceptance level for the swap should be considered a failure of the
government to have acted in good faith with bondholders and should
prompt the International Monetary Fund (IMF) to withhold further lending
to Argentina. In September last year, the IMF postponed outstanding
payments on the existing 3-year, US$ 13.3 billion stand-by agreement of
September 2003 by one year. If the acceptance level comes in below
60-65%, the IMF has stated that it is unlikely to begin negotiations for
a resumption of lending. Lacking sufficient acceptance, officials would
be forced to improve the current offer or risk marginalizing the country
from international markets for some time to come and jeopardizing the
sustainability of the current rebound in the economy.
Economic growth moderating
The monthly
indicator for economic activity (EMAE, Estimador Mensual de Actividad
Económica) rose 9.7% in November over the same month the prior
year. While the November reading was well ahead of the 7.2% expansion
registered the prior month, a month-on-month comparison suggests a
lesser pace of economic growth than indicated by the annual figure.
According to seasonally adjusted data, the economy expanded 0.58% over
the preceding month, following on a 1.09% monthly expansion in October.
Furthermore, the decelerating growth trend observed in the past months
remained intact. In November, the moving annual average growth rate
dropped to 9.0% from 9.1% in October.
Private consumption slows
Supermarket
sales rose just 1.9% in November 2004 over the same month the prior
year. The November reading was well below the 9.7% expansion registered
in the previous month and represented the lowest growth rate observed
since July 2003. Sales were strongest in electronics/household goods
(+41.6% year-on-year) and clothing/textiles (+21.4% yoy), while food
sales registered the lowest expansion (+2.6% yoy). The moderation in
supermarket sales was due principally to the stronger comparison base of
the prior year.
Industrial production accelerates
More recent
data releases indicate that economic activity accelerated in the final
month of the year. In December, industrial production rose 9.6% over
the same month the prior year. The December figure was well ahead of
the 8.3% reading of the previous month and continued the trend of rising
annual growth initiated in November 2003. A month-on-month comparison
confirms the improvement in industrial production, as output rose 1.94%
over the prior month in seasonally adjusted terms, which was more than
twice the 0.78% expansion observed in November. Robust output in
automobiles, print and paper products were the key factor behind the
December increase, while tobacco production experienced a decline. As a
result of the December increase, annual growth in industrial production
reached 10.7% last year, which was just ahead of the 10.5% figure in the
Consensus Forecast last month.
Construction activity remains robust
Similarly,
construction activity also remained buoyant through the end of the year
with growth in double-digit territory. In December, the construction
sector’s output rose 13.7% over the same month the previous year, which
was up from the 11.6% expansion the prior month. Growth was strongest
in oil-related and road construction activity, whereas other
construction activity experienced the lowest expansion. As a result of
the healthy December reading, the full-year expansion in construction
last year reached 16.7%.
Leading indicator points to more modest
improvements and consumers optimistic
The leading
and coincident indicators published by the University Torcuato di
Tella (UTDT) for December, also support the view that
economic activity remained on a strong footing in the final month of the
year. The leading indicator that tries to anticipate future
developments in the economy increased 3.22% over the prior month, which
was up from the 0.93% increase observed in November. All categories
that comprise the index experienced strong double-digit expansions. In
December, the UTDT consumer confidence index (ICC) for Buenos Aires rose
just moderately by 0.4 percentage points over the previous month. Of
the surveyed participants, 51.4% anticipated that the economic situation
would improve in the short and medium term, which was up from 51.2% in
November. The favourable effect of declining unemployment and lower
interest rates appears to remain a strong driver behind the current
expansion in private consumption.
Moderation in economic activity on the
horizon
According
to the Consensus Forecast, growth is likely to have remained healthy in
the final quarter of last year at 6.3%. As a result, gross domestic
product (GDP) is estimated to have grown 7.9% for the year as a whole,
which is up 0.1 percentage points from the prior month’s Consensus
Forecast figure. This year, the economy is expected to experience a
slowdown, as global economic activity should slow and moderate the
export expansion. Domestically, the sustainability of the economic
expansion and investment in particular will depend on the success of the
government’s debt restructuring and progress on economic reform.
Consensus Forecast participants expect growth to decelerate to 5.1% this
year, which is up 0.2 percentage points from last month.
External sector puts in strong
performance
In
December, exports increased 20.8% over the same month the prior year,
which was down moderately from the 24.4% expansion registered the prior
month but the trend of robust double digit annual expansions observed
since August continued. A month-on-month comparison confirms the strong
expansion, as export growth was up 1.5% over November in seasonally
adjusted terms. Manufacturing exports from the agricultural sector
experienced the strongest increase in December (+46.0% yoy), followed by
industrial manufacturing exports (+36.9% yoy) and fuels and energy
(+8.9% yoy). Healthy demand for transport materials in Brazil and
Mexico was the key driver behind the export expansion, while chemical
products demand from Brazil, the United States and the United Kingdom
provided an additional push to the export sector. As a result of the
strong December reading, annual exports reached US$ 34.5 billion last
year, which was up 16.5% over 2003.
Strong domestic demand drives up import
growth
Imports
rose 38.9% in December over the same month last year, which was down
from the 64.5% expansion in the previous month but continued the
resilient growth trend that kicked in February 2003. Capital goods
imports rose 55.2% over the same month last year, while intermediate and
consumer good imports were up 29.2% and 18.0% respectively for the same
period. As a result of the strong December reading in import growth,
the annual trade surplus narrowed to US$ 12.1 billion from US$ 12.2
billion in November. The final trade figure for last year was below the
US$ 13.0 billion expected in last month’s Consensus Forecast. This
year, the trade surplus will narrow to US$ 10.7 billion, as export
growth is seen decelerating and import growth is anticipated to maintain
a strong growth pace. |
