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Resilient economic growth amid strong domestic demand
Economy
growth remained robust through the end of last year. In December, the
monthly indicator of economic activity (EMAE, Estimador Mensual de
Actividad Económica) increased 8.1% over the same month the previous
year, which was below the 9.1% expansion observed the prior month. As a
result of the healthy December reading, economic activity moderated only
slightly in the final quarter of last year, with growth reaching 8.9%
over the same quarter the prior year, which was below the 9.2% reading
in the third quarter. A quarter-on-quarter comparison confirms the
growth resilience, as economic activity increased 2.15% in seasonally
adjusted terms in the fourth quarter of last year. Thus, full-year
gross domestic product (GDP) growth reached 9.1% last year, which was
even ahead of the 9.0% expansion the prior year.
Healthy
but moderating growth
More
recent economic indicators suggest that economic growth will moderate
from the current resilient pace. In the February industry
expectations survey from the National Statistical Institute (INDEC),
78.5% of the businesses surveyed expected domestic demand growth
to remain stable (up from 51.6% in January) whereas 13.8% (January:
42.2%) anticipated an increase and 7.7% (January: 6.2%) expected a
decline. Moreover, the consumer confidence index (ICC) published by the
University Torcuato di Tella (UTDT),
suggests that private consumption remained healthy in first quarter. In
March,
the UTDT-ICC
rose 2.8% over the preceding month. Of the surveyed participants, 67.6%
anticipated that the economic situation would improve in the short and
medium term, which was up from 63.0% in February. Consensus Forecast
participants expect economic growth to slow notably in the first quarter
but to remain robust throughout this year. As a result, Consensus
Forecast panellists expect gross domestic product (GDP) to grow by 6.4%,
which is up 0.2 percentage points from last month’s estimate and remains
below the government’s 7.0% and exceeds the Central Bank’s 6.2% figure.
Next year, economic activity will moderate further with growth reaching
4.0%, which is down 0.2 percentage points from last month.
Inflation moderates but remains beyond target
In
February, consumer prices rose 0.40%, which was the lowest reading since
November 2004 and half the increase anticipated by the market. The
February reading put an end to three successive monthly spikes. Strong
declines in clothing and entertainment prices provided for the moderate
development in consumer prices. As a result of the February figure
annual inflation dropped from 12.1% in January to 11.5%, which remains
above the Central Bank’s 8% to 11% monetary policy target range for this
year. Consensus Forecast participants expect inflation to resume an
upward trend throughout this year with annual inflation expected to
reach 13.2% by the end of the year, which is up 0.2 percentage points
from last month’s Consensus Forecast figure. Next year, Consensus
Forecast panellists expect consumer price pressures to persist, as
annual inflation is likely to remain virtually unchanged at 13.2%, up
0.2 percentage points from last month’s estimate.
Central
Bank aims to build up reserves following IMF payment
The
Central Bank hopes to replenish international reserve levels following
the retirement of the total US$ 9.5 billion of debt outstanding with the
International Monetary Fund (IMF) on 4 January. The repayment reduced
international reserve levels from US$ 28.1 billion to US$ 18.6 billion.
In January, monetary officials absorbed an average of US$ 37 million
daily, which raised international reserves by US$ 1.1 billion. In
February, reserve levels rose by an additional US$ 805 million. As a
result, the exchange rate has continued on a depreciation trend observed
since December. In February, the currency depreciated 0.4% nominally
to reach 2.07 pesos to the US$. The February currency movement
was down moderately from the 1.0% and 1.8% depreciations observed
respectively in January and December. Consensus Forecast participants
expect the currency depreciate an additional 1.1% from current levels to
close the year at 3.11 pesos to the US$. Next year, the pace of
depreciation is likely to accelerate with the exchange rate reaching
3.17 pesos to the US$ - a 1.9% nominal depreciation. |
