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Economic activity accelerates
In May, the monthly indicator for economic activity (IMAE, Estimador
Mensual de Actividad Económica) increased 10.5% over the same month last
year, which was up from the already robust April figure of 10.1%. and
represented the highest expansion observed since November last year. A
month-on-month comparison confirms the strong expansion. In seasonally
adjusted terms, economic activity rose 0.64% over April, which was down
only moderately from the 0.72% pick-up registered the prior month.
Moreover, the economy continued the acceleration trend observed in the
previous month, as the annual average growth rate rose from 8.5% in
April to 9.0% in May.
Industrial growth remains robust
More recent indicators suggest that economic activity remains
strong but is beginning to moderate from previous high levels. In June,
industrial production rose 6.3% over the same month last year. The June
reading was below the 8.4% growth experienced in May. Strong growth in
motor vehicles, rubber and plastics as well as paper and cardboard
output buttressed growth in June. Oil production, in contrast, declined
over the same month last year. A month-on-month comparison bears out the
deceleration in production, as seasonally adjusted output actually
declined 0.46% over May, reversing the 1.12% expansion observed the
previous month. Furthermore, the annual average growth rate continued
the decelerating trend with growth slowing from 8.7% in May to 8.3%.
Construction activity moderating at high levels
Construction activity is likely to have remained very robust in the
second quarter of the year. According to the construction activity
indicator (ISAC, Indicador Sintético de la Actividad de la Construcción),
construction activity increased 10.0% in June over the same month last
year, which was down from the 13.2% increase observed in May. Housing
and infrastructure construction drove the healthy activity in the
construction sector in June. Oil-related construction was the only
sub-sector to register a decline over June last year. The gradual
deceleration in the construction sector observed since April 2004 – only
briefly interrupted in April this year – remained in place. As a result
of the June reading, the annual average growth rate dropped from 12.0%
in May to 10.7%.
Private consumption healthy
Private consumption also maintained the strong pace of activity.
In May, supermarket sales rose 4.9% over the same month last year, which
was up from the 4.5% expansion observed the prior month. With the
exception of miscellaneous supermarket sales all sub-sectors decelerated
over the prior month, with sales of household goods, electronics and
clothing moderating most. A month-on-month comparison does not confirm
the slowdown exhibited by the annual figure, as supermarket sales rose
5.42% in May over the prior month, which reverted the 1.98% contraction
of the prior month. The consumer confidence index (ICC) published by the
University Torcuato di Tella (UTDT), indicates that private consumption
may be slowing into the third quarter. In July, the UTDT-ICC dropped
0.2%, continuing a trend of declining confidence observed since March.
Of the surveyed participants, 52.4% anticipated that the economic
situation would improve in the short and medium term, which was down
from 57.7% in June.
Public consumption picks up speed
Public consumption also continued robust, with growth remaining
in double digit territory through the second quarter. In June,
publication consumption rose 24.0% over the same month last year, which
was up from the 23.7% expansion registered in May. Telecommunications,
toll roads and cargo transport were the sub-sector exhibiting the
strongest expansions in June. As a result of the June reading, annual
average growth rate of public consumption rose to 24.1% from 23.8% in
June.
Investment growth remains strong
Investment continued to expand at a strong pace in the second quarter of
the year. In June, capital goods imports rose 83.8% over the same month
last year. Surging growth in imports of transport and industrial
equipment provided a strong push to capital goods imports in June. The
June reading was well above the 58.7% expansion observed in June. Due to
the healthy June growth pace, annual capital goods imports were up 60.6%
compared to the same period last year.
Strong imports and slowing exports narrow trade
surplus
In the second quarter, exports grew 13.6% over the same quarter last
year, which was virtually unchanged compared to the 13.5% expansion
observed in the first quarter. Growth in industrial and agricultural
manufactured products as well as fuel exports accelerated in the second
quarter, while primary goods exports decelerated. Despite moderating
domestic demand, import growth accelerated from the already robust 27.7%
year-on-year expansion in the first quarter to 38.3% growth in the
second quarter. Capital goods imports experienced the strongest growth
(+64.3% year-on-year), followed by intermediate goods (+31.1% yoy) and
consumer goods (+26.5% yoy). As a result of the second quarter reading,
the annual trade surplus narrowed to US$ 11.0 billion from US$ 11.8
billion in the first quarter. Consensus Forecast participants expect
that the import expansion will continue to outpace export growth. As a
result, the trade surplus is anticipated to narrow further this year to
US$ 10.3 billion.
Outlook upgraded amid persistence of healthy
growth
Gross domestic product (GPD) growth is likely to have remained robust in
the second quarter, as Consensus Forecast participants estimate that
activity actually accelerated to a 8.4% pace from 8.0% in the first
quarter. Nevertheless, Consensus Forecast panellists expect that the
pace is likely to moderate in the second half with growth slowing to a
6.7% expansion this year. The Consensus Forecast GDP growth estimate has
been revised upward by 0.2 percentage points over last month amid the
strong first half. The current Consensus Forecast figure for this year
is now above the Central Bank forecast of a 6.5% expansion and even
higher above the more conservative government’s 5.5% growth estimate.
Next year, economic activity is likely to moderate further with growth
anticipated by Consensus Forecast participants to reach 3.9%, which is
down 0.1 percentage points from last month’s estimate.
Consumer prices on gradual upward trajectory
Consumer prices increased 1.00% in July, which was up from the 0.92%
rise registered in the previous month and represented the highest rate
observed since July last year. Food and recreation costs exhibited the
strongest increases over the prior month, while clothing prices
registered a strong decline. As a result of the robust July reading, the
annual inflation rate rose from 9.0% in June to 9.6% in July, which is
the highest rate observed since June 2003. Consensus Forecast
participants expect inflationary pressures to persist in the second half
of the year with annual inflation reaching 10.7%, which is up 0.5
percentage points from last month’s estimate. At the current level, the
Consensus Forecast figure is well ahead of the Central Bank’s inflation
target range of 5% to 8% underlying this year’s monetary programme but
is still within the government’s forecast of 8% to 11%. Next year,
annual inflation is anticipated to moderate amid the slowdown in
economic activity. As a result, consumer prices are anticipated to rise
9.0%, which is also up 0.7 percentage points from last month’s Consensus
Forecast estimate.
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