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Economic
activity moderating
In
February, economic activity rose 8.6% over the same month in 2004,
according to the monthly indicator for economic activity (IMAE,
Estimador Mensual de Actividad Económica). The February reading was
below the 9.0% growth rate observed in the previous month. In
seasonally adjusted terms, economic activity was up 0.08% over January,
which was half the 0.16% increase observed the prior month.
Moreover, the downward trend in the overall economy
observed since November last year persisted, as the annual average
growth rate dropped from 8.9% in January to 8.7% in February.
Private
consumption growth decelerating
Recent
data suggest that the robust growth momentum is gradually receding to
more moderate levels. According to the National Statistical Institute (INDEC),
supermarket sales grew 1.1% in February over the same month last year,
which was just a fraction of the 9.3% expansion registered in January.
More recent figures from the Argentine Confederation of Medium-sized
Businesses (CAME, Confederación Argentina de la Mediana Empresa)
show that retail sales declined 1.8% in April over the same month last
year, which was down from the weak 1.3% increase observed in March.
Furthermore, additional indicators show that consumer confidence about
economic prospects for this year is diminishing. In April, the
University Torcuato di Tella's
(UTDT) consumer confidence index (ICC) for the capital of Buenos
Aires dropped 10.5% over the previous month - the highest decrease
observed since April last year. Of the surveyed participants, 59.5%
anticipate that the economic situation will improve in the coming year,
which is down from 68.9% in March.
Investment growth remains strong but slowing
Investment activities remained healthy in the first quarter of this year
but are showing signs of deceleration. In March, capital goods imports
rose 25.5% over the same month last year, which was slightly down from a
26.4% growth rate registered in the prior month. Over the past 12
months, capital goods imports were up 49.6% compared to the same period
a year ago. Despite the very strong growth in capital goods, the trend
is pointing downwards, as the March reading was down from an even higher
55.5% growth rate in February. The construction sector also points
towards a deceleration in investment activity. The INDEC construction
activity index (ISAC)
rose just 0.2% in March over the same month the prior year, which was
down from the 4.9% expansion the previous month and represented the
lowest growth rate observed since November 2002. Within the
construction industry, virtually all sub-sectors moderated notably, with
infrastructure and road projects leading the way. The only sub-sector
to register an improvement was oil-related construction.
Growth
outlook favourable amid continued strength in economy but moderation on
the horizon
Consensus Forecast participants expect gross domestic product (GDP)
growth to have moderated in the first quarter to a 7.3% pace (Q4 04:
+9.1%`year-on-year). Moreover, economic activity is seen to experience
successive quarterly deceleration throughout the year with full-year
growth anticipated to reach 6.1%, which exceeds the
official
estimate of 5.5% and is unchanged from last month’s forecast. Rising
interest rates, the less propitious external setting and higher
inflation will be key downward drivers behind the slowdown this year’s
slowdown. Next year, the pace of economic expansion should slow
further, as Consensus Forecast participants anticipate that GDP will
grow 3.9%.
Inflation moderates amid government efforts to negotiate price increases
In
April, consumer prices rose 0.49%, which was in line with Consensus
Forecast expectations and down notably from the 1.54% spike observed in
March. Lower price increases for basic foods, such as meat, poultry and
milk products accounted for the slowdown of inflation in April. In
March and April, the government held a series of meetings with producers
of basic goods to reach an agreement to lower prices. The agreements
appear to have generated results. As a result of the April reading, the
annual inflation rate dropped from 9.1% in March to 8.8%. Thus, the
annual inflation is below the
government’s inflation estimate, which was revised from 7.9% underlying
the 2005 budget to 10.5% and remains within the 5% to 8% target range
expected by the Central Bank for this year. Consensus Forecast
participants expect that consumer price pressures will persist
throughout this year with inflation expected to reach 9.7% by the end of
the year, which is up 0.3 percentage points from last month’s forecast.
Next year, Consensus Forecast participants expect annual inflation to
moderate to reach 7.6%, which is up 0.6 percentage points from last
month’s Consensus Forecast.
Central
Bank tightening monetary policy
Rising
inflation may prompt authorities to tighten the monetary reins further.
Since the beginning of the year, the Central Bank has raised its key
monetary policy instrument, the seven-day call rate (the interest rate
at which the monetary authority borrows from commercial banks), by 75
basis points to 3.25%. Consensus Forecast participants expect interest
rates to continue their rising trend this year with the benchmark
interest rate for 30 - 59 day deposits expected to rise steadily
throughout the year to reach 4.6%, which is up 0.3 percentage points
from last month’s Consensus Forecast figure and exceeds the 3.0% rate at
the end of last year.
Trade
surplus narrows amid declining export growth
In the
first quarter, exports grew 12.5% over the same quarter last year, which
was down from the 20.5% expansion observed in the final quarter of last
year. The slowdown was particularly pronounced in fuel exports, which
slowed from 21.7% the final quarter of last year to just 2.1% over the
same quarter the prior year. The decline was due to lesser sales volume
in Brazil and China. Even though growth in manufacturing exports of
industrial origin remained strong with a 28.3% expansion, the first
quarter figure was well below the 39.1% growth registered in the final
quarter of last year. The moderation in domestic demand is also
reflected in the trade figures, which show that import growth slowed
from a 45.9% year-on-year expansion in the final quarter of last year to
28.4% growth in the first quarter. The deceleration was most pronounced
in capital goods imports, which rose 16.5% year-on-year, compared to
73.3 % in the final quarter of last year. As a result of the first
quarter reading, the annual trade surplus narrowed to US$ 11.7 billion
from US$ 12.1 billion in the fourth quarter of 2004. According to
Consensus Forecast participants, the moderation in export growth is
likely to be more pronounced than the slowdown in the import expansion.
As a result, the trade surplus is anticipated to narrow further this
year to US$ 10.6 billion. |
