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Economy
decelerates a notch in first quarter
In the
first quarter, gross domestic product (GDP) expanded 8.4% over the same
period last year. The result was down from the 9.1% growth registered
in the final quarter of last year and also fell short of market
expectations, which had the economy growing 8.8%. The deceleration over
the previous quarter was due to a smaller contribution of the external
sector to overall growth, as domestic demand maintained the same pace
observed in the previous quarter. Total consumption decelerated from
the 9.2% annual growth tallied in the previous quarter to 8.0%.
Investment, in contrast, accelerated and expanded a strong 20.5%
year-on-year (Q4: +15.2% yoy). In the external sector, a slight
deceleration in imports was not enough to offset a sharp slowdown in
export growth. Exports expanded 6.3% yoy, down from the 10.6% tallied
in the previous quarter, while imports still grew a robust 22.2% (Q4:
+23.3% yoy). Export growth may have been affected by the massive
farmers’ strike that began on 11 March and that has been paralysing the
production and transportation of most of the country’s main export
commodities. At the sector level, the deceleration over the previous
quarter was driven by a slowdown in agriculture as well as in industry.
Agriculture output fell from 4.3% annual growth in the previous quarter
to a 0.4% contraction, while industry decelerated from 8.1% to 6.3%.
The performance in both sectors may as well have been negatively
affected by the farmers’ conflict. A quarter-on-quarter analysis
suggests a more pronounced deceleration than the annual data, as GDP
grew a meagre 0.63% over the previous quarter in seasonally adjusted
terms, down from a 1.79% expansion in the previous quarter.
Farmers’
strike starts to affect outlook
Despite
relatively strong first quarter results, the outlook for the economy in
the remainder of the year has started to deteriorate. The more sombre
perspectives are particularly due to weaker prospects for the domestic
sector, as both consumption and investment are set to decelerate.
Recent indicators corroborate the notion of weakening prospects for
private consumption. In June, the consumer confidence index (ICC)
published by the Universidad Torcuato di Tella (UTDT)
dropped 1.8% over the previous month, from 40.3 points in May to 39.6
and thus fell further below the 50-point threshold that separates
optimism from pessimism. In fact, the June result represented the
lowest confidence level in more than five years. Business confidence
also deteriorated a notch compared to the previous month. In June,
12.1% of the surveyed companies expected domestic demand to moderate in
the coming months, up from 10.5% in May. Business and consumer
confidence are severely affected by the ongoing conflict between
farmers’ unions and the government over the increase of export taxes on
some of the country’s main export products. While the protests and
road-blocks have been suspended for the time being, the 3-month strike
caused severe food and industrial supply shortages, which in turn have
fuelled inflation expectations and undermined confidence in the
government. Meanwhile, President Fernández recently asked Congress to
approve a bill which would codify the export tax increase. Congress is
expected to ratify the bill but may introduce changes to the proposal in
order to resolve the conflict. While perspectives for the domestic
economy are worsening, a strong external sector will partially offset
the weaker domestic sector. Although the farmers’ strike has negatively
affected exports, in the short term, soaring commodity prices are
compensating for the decline in turnover, resulting in only a minor
deterioration of the country’s external balances for this year compared
to last year. Consensus Forecast currently expect exports to increase
25.1% this year and the trade balance surplus to reach US$ 10.9 billion,
which is unchanged from the result registered last year.
In spite of the negative effects of the farmers’ strike,
the government expects the economy to expand 7.0% for the full
year, which is far above the 4.5%
initially estimated in this year’s budget. Consensus Forecast
panellists are increasingly pessimistic and expect economic growth to
reach 6.3% this year, which is 0.3 percentage points down from last
month’s forecast. Next year, Consensus Forecast participants foresee
economic growth to moderate to 4.3%.
Statistical Institute introduces new price index but suspicions remain
In May,
consumer prices added 0.56% over the previous month. The figure came in
below the 0.83% price rise observed in April and fell short of market
expectations, which had prices adding 0.80%. The monthly price increase
was primarily driven by higher prices for education and health care. As
a result of the May reading, annual headline inflation rose from 8.9% in
April to 9.1%. The May figures are the first result of a new consumer
price index that the National Statistics Institute (INDEC) introduced on
10 June. The most important changes implemented in the new index
include a mechanism to smooth out the impact of sharp seasonal price
changes and a reduction in the number of price categories measured, from
over 800 previously to 440 now. Apart from general information about
the kind of changes implemented, however, INDEC so far has neither
published the complete new list of categories measured nor the
respective weights given to the categories. Due to the lack of
information provided and the very moderate May reading, the introduction
of the new index has not been able to dispel suspicions that have
surrounded the official inflation data since the beginning of 2007.
Former Central Bank governor Alfonso Prat-Gay recently stated that,
based on provincial data, real annual inflation should amount to around
32%. Consensus Forecast panellists see inflation at 10.0% by year end,
which is
unchanged
from last month’s estimate. Next year, participants estimate inflation
to reach 10.7%.
Current
account surplus halves in first quarter
In the
first quarter, the current account incurred a surplus of US$ 1.6
billion. The result was above the US$ 1.1 billion surplus registered in
the same quarter the year before but constituted only half of the US$
3.2 billion surplus observed in the final quarter of last year. The
deterioration compared to the previous quarter was broad-based, as all
four components of the current account balance registered smaller
surpluses or larger deficits. In particular, the trade surplus shrank
significantly, from US$ 4.6 billion in the previous quarter to US$ 3.6
billion. The trade balance deteriorated as exports fell 5.0% over the
previous quarter (+41.7% year-on-year), while imports increased 1.5%
quarter-on-quarter (+39.3% yoy). Despite the weaker first quarter
reading, the annual current account surplus widened slightly, from US$
7.5 billion in the fourth quarter to US$ 7.9 billion. Consensus
Forecast participants anticipate the annual current account surplus will
shrink to US$ 6.1 billion this year. Next year, panellists anticipate
the current account surplus to fall further to US$ 3.6 billion.
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