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Economy
expands at fastest pace in over two years
In the
fourth quarter, gross domestic product (GDP) expanded 9.1% over the same
period the year before. The result was up from the 8.8% growth
registered in the third quarter but just fell short of market
expectations, which had the economy growing 9.3%. In addition, the
result represented the fastest pace in over two years. The acceleration
over the previous quarter was entirely driven by the domestic sector, as
the net contribution of the external sector to overall economic growth
diminished. Investments expanded a robust 17.7% over the same
period the year before, which was up from the 13.0% growth observed in
the third quarter. Total consumption also accelerated, but less
markedly, from 8.7% in the third quarter to 9.2% year-on-year. In the
external sector, a pick-up in exports was not enough to compensate for a
marked acceleration in imports. Exports grew 9.9% year-on-year, up from
8.0% growth in the third quarter, whereas imports expanded a more robust
24.0% (Q3: +18.9% year-on-year). At the sector level, the improvement
over the previous quarter was mainly driven by industry, which
accelerated from 6.9% annual growth in the third quarter to 8.4%. A
quarter-on-quarter analysis corroborates the picture of resilient
economic growth, as GDP grew 2.12% over the previous quarter in
seasonally adjusted terms. As a result of the fourth quarter reading,
the economy expanded 8.7% during the full year 2007, which was slightly
up from the 8.5% expansion observed in 2006.
Massive
farmers’ strike temporarily halts exports
After
having expanded at the fastest pace in over two years in the final
quarter of 2007, the economy will moderate this year, mainly as a result
of a softer domestic sector. However, growth rates will remain more
than healthy as a strong external sector will compensate for the
moderation in consumption and investment. In fact, Consensus Forecast
panellists raised their forecast for full-year economic growth by 0.2
percentage points this month, from 6.3% last to the current 6.5%. This
month’s rise constituted the sixth consecutive upward revision, as the
recovery from the devastating 2001/2002 crisis, now entering in the
sixth year, is stronger than expected. Recent data on business
sentiment support the optimism of Consensus Forecast panellists as in
February, 25.0% of businesses expected domestic demand to improve in the
coming months, whereas only 1.9% foresaw a deterioration, according to
the National Statistical Institute (INDEC). Meanwhile, on a more
negative note, farmers recently took to the streets to protest against
the increase in export taxes on several agricultural products. The
national strike brought production to a halt and impeded transport and
exports as road blocks were set up throughout the country. The
administration of Cristina Fernández recently increased the tax rates on
some of the country’s main export products, in order to ‘redistribute’
farmer’s large profits due to soaring world commodity prices and prevent
producers from leaving the local market unsupplied. After three weeks
of strikes and road blocks, on 30 March, the farmers called off a pause
of 30 days in order to negotiate with the government. The government is
expected to keep the new tax regime in place but to offer compensating
measures in particular for small farmers, such as compensation for
transport costs and price caps on fertilizers. While production and
transportation of several commodities came to a virtual standstill
during the strike, it is too early to assess the impact of the strikes
on the economy, as no data for March economic activity are yet
available. Minister of Economy Martin Lousteau recently stated that the
economy will expand 7.0% this year, far above the 4.5% growth initially
estimated in the budget for this year. The minister added that the
slowdown in the United States will affect the economy only marginally as
Argentine exports to the U.S. only make up a small part of total
exports. Consensus Forecast panellists are a bit more cautious and
expect economic growth to reach 6.5% this year, which is 0.2 percentage
points up from last month’s forecast. Next year, Consensus Forecast
participants foresee economic growth to moderate to 4.6%.
Inflation inches up
In
February, consumer prices added 0.47% over the previous month. The
figure almost halved the 0.93% price rise registered in January but, for
the first time in months, overshot market expectations, which had prices
adding 0.30%. The monthly price increase was primarily driven by higher
prices for food and beverages, while clothing prices decreased sharply.
Despite the more moderate January reading, annual headline inflation
inched up from 8.2% in January to 8.4%. Although the alleged
manipulation of inflation data was seen to be less severe in February,
the official inflation data published by the National Statistics
Institute (INDEC) continue to be met with suspicion. In the same vein,
the International Monetary Fund (IMF) recently asked INDEC to clarify
how inflation is measured and if employees have been replaced or fired
for refusing to use the new methodology to measure price variations.
Consensus Forecast panellists see inflation at 11.0% by year end, which
is
0.1 percentage points up from last month’s estimate. Next year,
participants estimate inflation to reach 11.9%.
Current
account surplus increases amid strong export growth
In the
fourth quarter, the current account incurred a surplus of US$ 3.2
billion. The result was up from the US$ 2.6 billion surplus registered
in the same quarter the year before and more than quadrupled the US$ 796
million surplus observed in the third quarter of last year. The
improvement compared to the previous quarter was due to a larger trade
surplus, which rose from US$ 2.4 billion in the third quarter to US$ 4.6
billion. Export growth stepped up from 19.7% year-on-year in the third
quarter to 32.8%, while imports expanded 36.3% (Q3: +35.7%
year-on-year). As a result of the fourth quarter reading, the annual
current account surplus widened from US$ 6.7 billion in the third
quarter to US$ 7.2 billion, which was, however, below the US$ 7.7
billion annual surplus registered in 2006. Consensus Forecast
participants anticipate the annual current account surplus will reach
US$ 6.8 billion this year. Next year, panellists anticipate the current
account surplus to shrink further to US$ 4.7 billion. |
