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Economic
activity decelerates but remains healthy
In the
third month of the year, economic activity decelerated reflecting a
slowdown in industrial production. In March, the monthly indicator of
economic activity (EMAE, Estimador Mensual de Actividad Económica)
increased 7.7% over the same month last year, which was below the strong
9.3% expansion observed the prior month (revised downward from the
previously reported 9.5% year-on-year growth). According to seasonally
adjusted data, however, economic activity rose 0.13% in March over
February. Despite the March slowdown,
the annual
average growth rate in economic activity remained at February’s 9.3%
level,
maintaining the robust and virtually unabated growth trend registered
since May 2005. Nevertheless, as a result of the March reading,
economic growth decelerated from 9.1% in the fourth quarter 2005 to 8.6%
in the first quarter this year, based on the preliminary monthly data.
Official data for the first quarter will be published on 15 June.
Outlook
optimistic amid healthy consumer and business confidence
Business
confidence remains healthy but moderated in line with the slowdown in
economic growth. According to the National Statistical Institute’s (INDEC)
industry expectations survey, 73.3% of the companies surveyed in May
anticipate that domestic demand will remain stable (up from 61.7% in
April), while 23.4% expect an increase (April: 36.7%) and 3.3% see a
decline (April: 1.6%).
In
contrast, the consumer confidence index (ICC) published by
Universidad
Torcuato di Tella (UTDT)
rose 5.07% over April and reached 56.8 points. At the current level,
consumer confidence is 10.4% higher than in May 2005. The May reading
suggests that private consumption is likely to continue sustaining
domestic demand while inflationary pressures will become more difficult
to curtail. Consensus Forecast panellists anticipate that economic
activity will decelerate noticeably in the second quarter of this year
with growth reaching 6.7%, down from the 8.6% first quarter growth.
Moreover, economic activity is likely to slow further throughout the
second half of the year with the full-year growth rate reaching 6.9%,
which is unchanged from last month’s figure and below the upward revised
Central Bank forecast figure of more than 7% growth. Next year,
Consensus Forecast participants expect growth to moderate further to a
4.5% pace.
Inflation moderates but remains beyond target
In May,
consumer prices rose 0.47%, which halved April’s 0.97% increase and was
well below market expectations of a 0.70% rise. The May price rise was
broad-based, with the exception of food, beverages and recreation
prices, which declined. As a result of the subdued price development in
May, annual inflation dropped from 11.6% in April to 11.5%, which
remains above the Central Bank’s 8% to 11% inflation target range for
this year.
Consensus Forecast participants expect price pressures
to continue with inflation reaching 12.8% this year, which is up 0.2
percentage points from last month’s forecast. Next year, panellists
anticipate inflation to reach 12.5%, which is up 0.1 percentage points
from last month’s estimate.
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