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Strong
growth persists
Recent
data suggest that economic activity remained healthy through the end of
last year, as domestic demand remained robust. In November, the monthly
indicator for economic activity (EMAE, Estimador Mensual de Actividad
Económica) rose 9.2% over the same month the previous year, which
was down only slightly from the 9.5% expansion observed in October.
Moreover, a month-on-month comparison confirms that the economy
continued to grow at a fast rhythm. In seasonally adjusted terms,
economic activity rose 0.91% in November over the prior month. As a
result of the November reading, the annual average growth rate dropped
moderately from 9.4% in October to 9.3%, which maintained the trend of
robust growth at virtually the same pace registered since May.
More recent data indicate that industrial production
remained strong in the final quarter amid strong output growth in motor
vehicles and non-metal minerals. In November, industrial production
rose 8.9%, which was down from 9.4% the prior quarter and sustained the
annual average growth rate at 7.8%.
Government
optimistic about growth prospects
The
government anticipates that the robust growth trajectory will persist
through then first half of the year but that the expansion pace will
moderate in the second half. Nevertheless, the government expects gross
domestic product (GDP) to grow 7.0% this year, which is up from the 4.9%
estimate in the 2006 Budget and also exceeds the Central Bank’s forecast
of a 6.2% expansion. Consensus Forecast participants are not as
optimistic as the government but nevertheless expect economic activity
to rise 6.2% this year, which is up 0.7 percentage points from last
month’s Consensus Forecast figure. Next year, economic growth is
anticipated to moderate to a 4.2% pace, which is up 0.1 percentage
points from last month.
Inflation
continues under pressure
Consumer
prices increased 1.28% in January, which was exactly in line with market
expectations but ahead of the prior month’s reading of 1.11%.
Recreation and medical costs experienced the strongest monthly
increases, whereas most other price categories experienced moderate
increases. Despite the January reading, the annual inflation rate
dropped from 12.3% in December to 12.1%, the first decline since May
last year. On 1 February, the government reached an agreement with
major national supermarkets to freeze prices on 150 basic consumer goods
for one year. The February agreement followed an agreement of 1
December, whereby supermarkets had agreed to lower prices by 15% on 230
products through January of this year. The government is confident that
the new agreement will help contain rising consumer prices and that
inflation will reach
8% to
11%, which is also the Central Bank’s monetary policy target.
Nevertheless, Consensus Forecast participants are not as optimistic,
expecting annual inflation to reach 13.0% this year, which is up 1.5
percentage points from last month’s estimate. Next year, Consensus
Forecast panellists anticipate inflation to moderate to 13.0%, which is
up 3.5 percentage points from last month’s estimate.
Slowing
exports and resilient imports narrow trade surplus
In the
final quarter of last year, the trade balance registered a US$ 2.4
billion surplus. The fourth quarter reading was below the US$ 3.4
billion surplus in the third quarter and below the US$ 2.6 billion
surplus observed in the same quarter the year before. Nevertheless,
both exports and imports remained in double-digit growth territory.
However, export growth moderated in the fourth quarter while the import
expansion remained more robust. Export growth decelerated from a 21.0%
year-on-year expansion in the third quarter to 14.8% growth in the
fourth. Continued healthy growth in manufactured agricultural exports
was not sufficient to offset the slowdown in primary and manufactured
industrial products. Imports expanded 22.8% in the fourth quarter
annually, which was down just moderately from the 23.5% expansion in the
third. Healthy growth in capital goods and automobile imports provided
the lion share of the boost to overall imports. As a result of the
fourth quarter reading, the annual trade surplus reached US$ 11.3
billion, which was down from the US$ 12.1 billion surplus the prior
year. This year, Consensus Forecast participants expect the trade
surplus to narrow further to reach US$ 9.5 billion amid less pronounced
export growth and a persistence of healthy import demand.
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