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Economic growth slows in second
quarter
In the second quarter, gross domestic product (GDP) grew 2.0% over the
same quarter last year. The second quarter performance was precisely in
line with the 2.0% Consensus figure of last month, which had anticipated a
slowdown in economic activity over the previous quarter, when growth had
come in at a surprisingly more robust 3.9%. In seasonally adjusted terms,
GDP grew just 0.2% over the first quarter, which was down from 0.5%
variation observed in the previous quarter.
Key behind the second quarter slowdown was the moderation in growth
observed in the manufacturing and construction sectors. Manufacturing
industry growth in the second quarter reached just 1.0% (Q1: 8.6%) over
the same quarter last year, while the construction sector experienced a
5.0% expansion (Q1: 14.7%). Agricultural output, which accounts for 13.6%
of GDP, entered negative territory. As the result of adverse climatic
conditions, agricultural activity dropped from 2.1% growth in the first
quarter to a contraction of 1.0% in the second quarter. Mining was the
only sector to experience a strong surge, with growth accelerating from a
2.5% contraction in the first quarter to a 10.9% expansion in the second
quarter. Increased coal, gold and silver output were the key drivers
behind the improvement of mining. Oil output, on the other hand, remained
plagued by continued guerrilla attacks against one the country’s largest
oilfields.
Declining unemployment insufficient
to bolster private consumption
In June, unemployment reached 16.9% for the 13 major metropolitan areas,
1.1 percentage points below the levels observed for the same month last
year. The improvement is mainly due to a rise in the number of employed.
When combined with low interest rates, the current downward trend in
unemployment should provide momentum for a rebound in private consumption.
However, the real wage deterioration induced by strong currency
depreciation earlier this year and tight credit conditions continue to be
felt. Retail sales in June were down 3.2% over the same month last year,
which represented a significant deceleration in activity over the previous
month, when growth had reached a modest 0.6%.
Investment slows despite favourable
interest rate setting
Supply and demand data have not yet been published. However, import data
suggest that investment has slowed in the second quarter. In June capital
good imports were down 3.1% over the same month last year. The June
reading was only a modest improvement compared to the previous month’s
reading of a 3.7% decline. Investment in agriculture and industry
continues to remain strong, as these sectors take advantage of lower
domestic interest rates and a more competitive exchange rate to benefit
from a pickup in international demand.
Economic growth to be led by export
sector
The private consumption and investment data indicate that subdued domestic
demand dragged down economic activity in the second quarter, as export
growth remained very strong. In the second quarter, exports were up 2.7%
over the same quarter last year, compared to a 1.0% contraction in
imports. Consensus Forecast participants anticipate the current trend of
an export-induced growth trajectory to persist through the end of this
year. Robust export growth of 7.0% should help boost economic activity, as
imports will expand at a very modest 1.6%. On the downside, consumption is
seen to grow at a moderate 2.2%. Investment, however, should rebound at
healthy 7.0% in 2003, albeit at a slower pace than observed earlier this
year, as firms continue to take advantage of low interest rates. As a
result, total economic growth is seen as expanding 2.6% this year, which
is up a 0.1 percentage point from last month’s forecast. Next year, the
domestic side of the economy should experience a boost, and growth in the
external sector is likely to remain healthy. As a result, GDP is seen
expanding 3.3%, which is unchanged from last month’s consensus.
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