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Economy
robust in first quarter …
In the
first quarter, gross domestic product (GDP) expanded 8.6% over the same
quarter last year, which was in line with last month’s
government preliminary figure
but a
notch below market expectations of 8.7%. The first quarter reading was
below the 9.0% expansion registered the prior quarter (previously
reported: +9.1% year-on-year). As in the previous quarter, a
persistence of double-digit domestic demand growth was the key driver
behind the healthy first quarter expansion, as the net contribution of
the external sector to overall growth diminished. On a sectoral level,
the industry and service sectors continue to demonstrate robust growth,
while agricultural output decreased for the second consecutive quarter.
A quarter-on-quarter reading does not corroborate the deceleration
suggested by the annual figure, as economic growth reached 1.2% in
seasonally adjusted terms.
… but
economic activity indicator points to moderating growth
More
recent data suggests that economic growth continues to moderate in the
second quarter. In April, the monthly indicator of economic activity (EMAE,
Estimador Mensual de Actividad Económica) increased 6.4% over the
same month last year, which was below the strong 8.3% expansion observed
the prior month (revised upwards from the previously reported 7.7%
year-on-year growth) and below market expectations of 7.0% growth. In
fact, the April reading constitutes the slowest growth rate observed
since May 2004. As a result of the April slowdown,
the annual
average growth rate in economic activity dropped from 9.3% in March to
8.9%,
which is the first reading below 9.0% since May last year. According to
seasonally adjusted data, however, economic activity rose 0.74% in April
over March.
Unemployment rate in one digit after thirteen years
The
labour market continues to develop favourable. According to President
Kirchner, the unemployment rate fell to 9.8% in May from the 11.4%
registered in the first quarter of the year. This is the first time in
13 years that the rate has dropped below double digits. The May
unemployment figure suggests that private consumption is likely to
continue sustaining domestic demand. Nevertheless, strong domestic
demand is also likely to prompt inflationary pressures. Furthermore,
business confidence continues to moderate in line with the slowdown in
economic growth. According to the National Statistical Institute’s (INDEC)
industry expectations survey, 68.1% of the companies surveyed on 26 June
anticipated that domestic demand remained stable in that month compared
to May (down from 73.3% surveyed in May), while 19.1% expected an
increase (April: 23.4%) and 12.8% saw a decline (April: 3.3%).
Consensus Forecast panellists anticipate that economic activity will
decelerate in the second quarter of this year with growth reaching 7.3%,
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 7.2%, which is up 0.3 percentage points
from last month’s figure and in line with the Central Bank forecast
figure of more than 7% growth. Next year, Consensus Forecast
participants expect growth to moderate further to a 5.0% pace.
Inflation moderates to reach upper limit of Central Bank inflation
target range
In June,
consumer prices increased 0.48%, which was virtually unchanged compared
to the 0.47% rise registered in May, but below the 0.84% increase
expected by Consensus Forecast panellists. Just like last month, the
June price rise was broad-based, with housing, home equipment and food
prices registering the highest increases. As a result of the subdued
price development in June, annual inflation dropped from 11.5% in May to
11.0%, reaching the upper limit of the Central Bank’s 8% to 11%
inflation target range for 2006. This is the first time this year that
annual headline inflation enters the Central Bank inflation target
range. However,
Consensus
Forecast participants expect price pressures to continue throughout this
year with inflation reaching 12.3% by year-end, which is down 0.5
percentage points from last month’s forecast. Next year, panellists
anticipate inflation to reach 12.0%, which is also down 0.5 percentage
points from last month’s estimate.
Debt
retirement prompts pronounced capital and financial account deficit
In the
first quarter, the current account balance incurred a surplus of US$ 1.2
billion, which was below the US$ 1.5 billion surplus observed in the
fourth quarter 2005 but represented an improvement compared to the US$
185 million surplus registered in the first quarter last year. The
improvement over the same period last year was almost entirely due to a
narrowing in the income deficit, which dropped from US$ 2.3 billion in
the first quarter 2005 to US$ 1.3 billion in the first quarter this
year. The trade surplus remained virtually unchanged at US$ 2.4
billion.
On the other hand, in the first quarter, the capital
and financial account registered a pronounced deficit of US$ 8.1
billion, which was below both the US$ 1.6 billion surplus observed in
the fourth quarter 2005 and the US$ 184 million surplus registered in
the same quarter of 2005. The first quarter capital and financial
account deficit reflects the
retirement of the total US$ 9.5 billion of debt outstanding with the
International Monetary Fund (IMF).
As a result of the first quarter reading, the annual current account
surplus rose from
US$
5.7
billion in the previous quarter to
US$ 6.7
billion. Consensus Forecast participants anticipate the annual current
account surplus to narrow, reaching US$ 4.2 billion at the end of the
year. |
