|
Economic
growth on robust expansion path
Gross
domestic product (GDP) expanded 9.1% in the final quarter of last year
over the same quarter the prior year. The fourth quarter reading was
well ahead of market expectations and exceeded the 8.7% expansion
observed in the prior quarter. A quarter-on-quarter comparison confirms
the healthy growth trajectory observed in the final quarter, as economic
activity rose 2.74% over the prior quarter – down moderately from the
3.32% expansion in the third quarter.
Domestic
demand bolsters economy
The
acceleration observed in the year-on-year growth in the fourth quarter
was mainly due a higher contribution from the external sector. The
domestic side of the economy, on the other hand, decelerated slightly
over the third quarter. That said, domestic demand was still robust and
was in fact the key driver behind the strong economic expansion in the
final quarter of last year, registering an expansion of 11.3% over the
fourth quarter 2003 (Q3 2004: 12.1% yoy). Consumption grew 8.7%, which
represented an acceleration compared to the 8.1% in the previous
quarter. Investment, however, decelerated from the very buoyant 33.6%
expansion in the third quarter to 23.9% in the fourth quarter. The
contribution of the external sector increased amid quickening exports
and less dynamic imports. Exports grew 15.4% in the fourth quarter, up
from 9.2% growth in the third quarter. Imports, on the other hand,
decelerated from 38.2% in the third quarter to 27.8% in the fourth.
Construction drives economic activity
The
construction sector experienced the strongest expansion in the final
quarter of last year, as growth reached 21.7% over the same quarter the
previous year (Q3 2004: +26.4% year-on-year), which was the eighth
consecutive double-digit expansion. Transport, storage and
communications grew 16.2% (Q3 2004: 13.4% yoy), followed by wholesale
and retail trade with a 12.2% (Q3 2004: +14.2% yoy) expansion. The only
sector to register a contraction in the fourth quarter of 2004 was
fishing, where activity was down 29.8% over the same quarter the prior
year (Q3 2004: -29.7% yoy).
Economic
growth strong in January but downward trend in place
In January,
economic activity rose 9.1% over the same month last year, according to
the
monthly
indicator for economic activity (EMAE, Estimador Mensual de Actividad
Económica). The January reading was below the 9.7% annual growth
rate recorded in December. A month-on-month comparison bears out the
weaker reading. According to seasonally adjusted data, the economy grew
0.40% over the preceding month, following on a 0.65% monthly expansion
registered in December. The deceleration is an indication that the
recovery of the economy is drawing to an end, as the strong comparison
base last year kicks in. Moreover, the upward trend in the overall
economy did not remain intact. In January, the annual average growth
rate inched downward from 9.0% in December to 8.9% - continuing the
trend observed since November last year.
Leading indicator suggests recovery to continue and
consumers are increasingly optimistic
The leading
and coincident indicators published by the
University Torcuato di Tella (UTDT)
for March,
indicate that economic activity remained on a strong footing into the
first quarter of this year. The coincident indicator that tracks the
current developments in the economy was down 2.10% over the preceding
month. The rise was due to deterioration in virtually all categories
that comprise the index. The leading indicator that tries to anticipate
future developments in the economy increased 5.82% over the prior month,
compared to the 0.40% increase observed in February. In fact, the
strong jump observed in March constituted the highest monthly increase
since October last year. Most categories that comprise the index
experienced strong expansions. Furthermore,
the UTDT
consumer confidence index (ICC) for Buenos Aires rose 7.1 percentage
points over the previous month. Of the surveyed participants, 68.1%
anticipated that the economic situation would improve in the short and
medium term, which was up from 62.2% in February. Declining
unemployment and lower interest rates are key drivers behind the current
optimism.
Outlook
favourable
The healthy
fourth quarter reading helped lift the full-year growth rate for 2004 to
9.0%, which was ahead of the 8.8% expansion expected by Consensus
Forecast participants last month and exceeded the government’s 7.0%
estimate. Consensus Forecast panellists have reflected the
better-than-expected fourth quarter data and the upbeat surveys in early
2005 and have lifted their forecast for this year’s economic expansion.
Nevertheless, compared to last year’s strong expansion, economic
activity is anticipated to slow notably. Nevertheless, Consensus
Forecast participants expect GDP to grow 6.1% this year, which is well
ahead of the official estimate of 5.5% and is up 0.4 percentage points
from last month.
Consumer
prices on the rise
In March,
consumer prices rose 1.54%, which was well ahead of market expectations
and came in above the 0.95% reading the prior month. High food and
beverage prices along with rising educational costs were the key drivers
behind the March increase. As a result of the March reading, the annual
inflation rate rose from 8.1% in February to 9.1%. At its current
level, the annual inflation rate is well ahead of the
government’s budgeted inflation figure of 7.9% but remains within the
Central Bank’s target range of 5% to 8% for 2005. Consensus Forecast
participants expect the annual inflation rate to drop just moderately
throughout this year with prices seen rising 9.4%, which is up 1.2
percentage points from last month.
Current
account surplus narrowing
In the
fourth quarter of last year, the current account balance recorded a
surplus of US$ 484 million. The surplus was a notch below the US$ 499
million surplus registered in the preceding quarter and less than half
the US$ 1.1 billion surplus observed in the final quarter of the prior
year. The decline over the prior year was the result of a higher
deficit in the incomes balance, which widened from US$ 2.1 billion in
the fourth quarter 2003 to US$ 2.4 billion in the final quarter of last
year. Similarly, the trade surplus narrowed from US$ 3.3 billion in the
fourth quarter 2003 to US$ 2.9 billion in the final quarter of 2004.
The capital
account surplus widened in the fourth quarter of last year to US$ 471
million from US$ 282 million the previous quarter and from a US$ 885
million deficit for the same quarter the previous year. As a result of
the twin surplus in the current and capital account, international
reserves increased US$ 1.2 billion the fourth quarter. Nevertheless,
the annual current account surplus dropped from US$ 3.6 billion in the
third quarter of last year to US$ 3.0 billion in the fourth. Consensus
Forecast participants expect the current account surplus to narrow
further this year to reach US$ 2.1 billion, amid a narrowing in the
trade surplus. |
