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February
economic activity stronger than expected. In February,
the monthly indicator for economic activity (IMACEC) increased at an
annual rate of 3.7% over the same month in 2000. The increase came
as a surprise – the Consensus expected growth at 2.9% -- since earlier
released data for industrial production and trade had suggested a slower
growth rate for February. In addition, February this year had one
day less than February 2000, which accounted for about 1 percentage point
less activity, according to the Central Bank. Seasonally adjusted
data indicate that economic activity expanded 2.1% over January.
March
data point toward slump in economic activity. The
encouraging February reading was followed by dismal data for March
unemployment and industrial production. The National Statistical
Institute (INE) reported that unemployment increased 0.4 percentage points
to 8.8% in the first quarter from 8.4% in the December-February period.
Compared to the same period last year the unemployment rate increased 0.6
percentage points. Industrial production contracted 1.7% in March
over the same month last year, driven by deteriorating non-durable
consumer goods output.
Growth
forecasts pared yet again. The disappointing March
numbers have prompted panellists again to pare their forecasts for GDP
growth this year. Nevertheless, Consensus data show that the
slowdown in economic growth will bottom out in the first quarter and begin
accelerating in the last quarter this year. In 2002, the Consensus
Forecast sees prospects improving further as the effects from the economic
downturn in the United States and the uncertainty related to economic
reforms subside.
Government
announces capital market reforms. The government has been
criticised for contributing to the economic downturn via its labour reform
project. In response, officials have announced 15 measures aimed at
modernizing the domestic capital market and allowing for greater financial
integration. Key among the reforms is the plan to eliminate the
capital gains tax for domestic investors, which follows the recent
elimination of the capital gains tax for foreign investors - yet to be
approved by Congress as part of the Tax Evasion Bill. Other measures
include the creation of a new stock exchange segment for emerging
companies, the deregulation of the mutual fund, insurance and pension fund
industries, the possibility of short-selling equity and fixed income
instruments as well as improvements to the Banking Law. Since some
of the measures have budget implications they require legislative
approval. The corresponding bills will be sent to Congress in the
coming weeks, according to the Ministry of Finance. While the
approval in Congress and the ensuing implementation will require
substantial time and thus will not help to stimulate the economy in the
short-term, the measures were well received by the market and should have
a positive impact in the medium term.
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