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Economy
remains on robust growth track propelled by domestic demand
In the
final quarter of last year, gross domestic product (GDP) expanded 9.1%
over the same quarter of the previous year, which was in line with the
government’s preliminary figure released earlier
and exceeded last month’s Consensus Forecast figure of 8.9% growth. In
the third quarter, the economy grew by 9.2%. A persistence of
double-digit domestic demand growth was the key driver behind the
healthy economic expansion in the final quarter of last year, as the net
contribution of the external sector diminished. A quarter-on-quarter
reading corroborates the strong pace suggested by the annual figure, as
economic growth reached 2.13% in seasonally adjusted terms. As a result
of the healthy fourth quarter growth figure, full-year GDP growth
reached 9.2% last year, which was ahead of the 9.0% expansion in 2004
and represented the fastest growth registered since 1992.
Domestic
demand growth sound but moderation likely
Business
confidence continues to remain healthy despite the moderation in the
growth pace of economic activity. According to the National Statistical
Institute’s (INDEC) industry expectations survey for March, 67.7% the
companies surveyed anticipated that domestic demand will remain stable
(down from 78.5% in February), while 28.9% expect an increase (February:
13.8%) and just 3.4% see a decline (February: 7.7%). Furthermore,
private consumption remains robust. In January, supermarket sales were
up 14.3% over the same month the prior year, which represented an
acceleration from the already strong 13.2% increase the prior month.
Moreover, the University Torcuato di Tella’s (UTDT)
monthly consumer confidence index (ICC), indicates the consumer
confidence remains sound. In March, the UTDT-ICC increased 6.5% over
the preceding month. Of the persons surveyed, 67.6% expect the economic
situation to improve in the short and medium-term, which represented an
improvement from the 63.0% in February. Nevertheless, Consensus
Forecast panellists anticipate that economic activity will moderate
noticeably in the first quarter with growth reaching 6.6%. In addition,
economic activity will slow further throughout the year with the
full-year growth rate reaching 6.8%, which is up 0.4 percentage points
from last month’s Consensus Forecast figure and is below the
government’s 7.0% and above the Central Bank’s 6.2% forecast figures.
Next year, Consensus Forecast participants expect growth to moderate
further with GDP expanding 4.2%, which is up 0.2 percentage points from
last month.
Inflationary pressures persist
Consumer
prices rose 1.20% in March, which tripled the 0.40% increase registered
in February and also exceeded the 1.06% increase expected by Consensus
Forecast panellists. A pronounced spike in education, clothing and food
prices accounted for the strong March reading. In spite of the March
price spike, annual headline inflation dropped from 11.5% in February to
11.1%, which exceeds the 8% to 11% inflation target range of the Central
Bank for this year. The rising inflationary pressures observed since
the beginning of last year have endured despite a government agreement
from
1 February with major national supermarkets to freeze
prices on 150 basic consumer goods for one year. Consensus Forecast
participants expect the upward trend in consumer prices to remain in
place until the end of this year with inflation anticipated to reach
12.7% this year, which is down 0.5 percentage points from last month’s
forecast. Next year, price pressures are likely to persist with annual
inflation anticipated by Consensus Forecast panellists to reach 12.4%,
which is down 0.8 percentage points from last month’s estimate.
Current
account surplus sustained
In the
fourth quarter, the current account balance incurred a surplus of US$
1.5 billion, which was below the US$ 2.1 billion surplus observed in the
third quarter but represented an improvement compared to the US$ 392
million surplus registered in the same quarter of 2004. The improvement
over the same period the previous year was almost entirely due to a
narrowing in the income deficit, which dropped from US$ 2.4 billion in
the fourth quarter 2004 to US$ 1.4 billion in the final quarter of
2005. The trade surplus remained virtually unchanged at US$ 2.8
billion, despite the fact that export growth slowed further and import
growth remained unchanged in the final quarter.
As a
result of the fourth quarter reading, the annual current account surplus
reached
US$ 5.4
billion, which was up from the US$ 3.3 billion surplus registered the
quarter before. This year, Consensus Forecast participants anticipate
the annual current account surplus to widen, reaching US$ 3.8 billion. |
