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Economic
growth inches down in first quarter
In
March, the monthly indicator for economic activity (EMAE, Estimador
Mensual de Actividad Económica) rose 8.1% over the same month last
year. The result was down from the 8.7% growth registered in February
but came in ahead of market expectations, which had the economy growing
7.4%. As a result of the monthly reading, annual average growth in
economic activity continued its rising trend and inched up from 8.8% in
February to 8.9%. A month-on-month comparison, however, does not
corroborate the deceleration suggested by the annual figures, as the
economy expanded a strong 1.18% over the previous month in seasonally
adjusted terms, which contrasted the 0.59% contraction registered in
February. Based on the preliminary monthly data, the economy expanded
8.8% in the first quarter over the same period last year. The result
was down from the 9.1% expansion registered in the final quarter of
2007. More detailed first quarter data will be published on 13 June.
Consumer
confidence plummets as farmers’ strike continues
The
economy is set to moderate from last year’s strong growth, as domestic
demand, which has constituted the main driver of economic growth in the
past years, will weaken. However, a resilient external sector will
partially compensate for the moderation in consumption and investment
and as a result, economic growth will remain robust. Recent indicators
corroborate the notion of weakening private consumption. In May, the
consumer confidence index (ICC) published by Universidad Torcuato di
Tella (UTDT) plummeted 11.6% over the previous month, from
45.6 points in April to 40.3 and thus fell further below the 50-point
threshold that separates optimism from pessimism. The May reading,
which in particular reflected deteriorating macroeconomic expectations,
represents the lowest confidence level in over five years. While
domestic demand is set to moderate, the external sector will pick up
some of the slack, with Consensus Forecast panellists predicting exports
to accelerate compared to last year and expand a healthy 24.6%
annually. However, the favourable prospects for exports are primarily
due to soaring commodity prices, which implies the possibility of a
downward adjustment if prices fall. In addition, the yet unresolved
conflict between farmers and the government over the increase of export
taxes on some of the country’s main export products is disrupting
agricultural production and could severely affect commodity exports in
the months ahead. On 2 June, the farmers’ unions decided to extend the
nationwide strike for at least another week, after they rejected a
compromise proposal from the government, which would ease but not
eliminate the tax increases. Despite the significant risks to the
economy, the government expects economic growth to reach 7.0% this year,
well above the 4.5% underlying the budget for this year. Consensus
Forecast panellists are a bit more cautious and expect economic growth
to reach 6.6% this year, which is unchanged from last month’s forecast.
Next year, Consensus Forecast participants foresee economic growth to
moderate to 4.5%.
INDEC
ordered to clarify methodology
In
April, consumer prices added 0.83% over the previous month. The figure
came in below the 1.13% price rise registered in March and, yet again,
beat market expectations, which had prices adding 0.90%. The monthly
price rise was primarily driven by higher prices for clothing and
housing. As a result of the April reading, annual headline inflation
increased a notch from 8.8% in March to 8.9%. The relatively modest
price increase and the fact that, in contrast to global developments,
food prices do not constitute the primary driver of inflation, once
again fuel suspicions that surround the official inflation data
published by the National Statistics Institute (INDEC). Following on a
similar request by the IMF, an Argentine judge recently ordered INDEC to
clarify how inflation is measured and what changes have been made in the
methodology to measure price variations since the beginning of 2007.
Consensus Forecast panellists see inflation at 10.0% by year end, which
is 0.6 percentage points down
from last
month’s estimate. Next year, participants estimate inflation to reach
10.8%.
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