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The economy continues to benefit from the pickup in
global demand, while on the domestic side activity is bolstered by the
more stable exchange rate, declining unemployment, lower interest rates
and an improved credit setting. However,
growth is beginning to slow, as the weak comparison base of early last
year gives way to a more robust growth setting.
In addition, the failure to conclude the debt restructuring and
to adopt necessary structural reforms might eat away at investment and
could undermine the sustainability of the current recovery.
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Strong
first quarter confirmed as robust economic expansion sustained
In the first quarter, gross domestic product (GDP) expanded 11.2% over
the same quarter last year. The first quarter figure was slightly
below the 11.7% expansion observed in the final quarter of last year but
was well above the 10.4% growth rate anticipated by the LatinFocus
Consensus Forecast last month. Nevertheless, seasonally adjusted
data indicate that the pace of economic activity slowed at the beginning
of the year. Compared to the previous quarter, the GDP expanded
1.7%, which was down from the 3.0% quarter-on-quarter expansion
registered in the final quarter of last year.
Domestic
demand flourishes amid improved setting
Declining unemployment and an improved credit setting served to bolster
domestic demand notably in the first quarter, as year-on-year growth
accelerated to 15.5% from 15.1% in the previous quarter.
Investment was the key driver behind the pickup, as growth advanced from
the strong 48.9% pace in the fourth quarter of last year to 51.0% in the
first quarter. Similarly, total consumption growth rose 10.1% over
the first quarter last year, which was up from the 9.8% expansion
observed in the prior quarter. The moderate 1.4% expansion in
public consumption was notably outpaced by the strong pick up in
household consumption, which rose 11.7% over the same quarter last year.
The robust domestic demand also boosted imports, which increased 57.0%
in the first quarter (Q4 03: +51.7% year-on-year). Exports, on the
other hand, rose only a moderate 7.7% (Q4 03: +5.5% yoy).
Construction
and manufacturing drive robust growth
The construction sector was again the fastest-growing sector. In
the first quarter, construction activity was up 41.3% over the same
quarter last year. The first quarter reading represented the
fourth consecutive quarter where construction growth outpaced all other
sectors of the economy. Similarly, manufacturing continued to
benefit from the strong domestic and international demand boost, which
drove up activity by 15.6% above the same quarter last year. The
only two sectors to experience contractions in activity were financial
intermediation (-12.6% yoy) and fishing (-5.8% yoy).
Energy
concerns overshadow prospects
The lingering energy crisis is likely to exert significant downside
pressure on economic activity. The current energy crisis is the
result of a government-imposed two-year public tariff freeze, which
forced utility companies to cut back investment considerably. The
combination of stalled investment and robust economic growth has
provoked nationwide energy shortages.
Economy
dips into negative territory for first time since rebound began
A more pronounced deceleration in economic activity cannot be ruled out,
since the current gas and electricity shortfalls have prompted the
government to implement restrictions on domestic energy consumption.
In fact, in April, the monthly indicator for economic activity (IMAE,
Estimador Mensual de Actividad Económica) increased 6.2% over the same
month last year, which was almost half the 11.7% growth rate registered
in the previous month. A month-on-month comparison confirmed the
slowdown, as activity actually declined 1.6% over March – the first
monthly decline since August 2002.
Government
lifts forecast despite energy woes
The continued positive growth trajectory prompted the government to
revise its GDP forecast for this year from 5.5% to 6.0% in mid-June.
Consensus Forecast participants are even more optimistic that the
continued favourable international setting and robust domestic demand
will lift growth to 7.1%, which is up 0.1 percentage point from last
month’s forecast. However, in addition to energy consumption
cutbacks, further delays in structural reforms and debt restructuring
will dampen the pace of economic growth. As a result, next
year’s growth is anticipated to slow from the current healthy pace to
a much more moderate 3.9%. |
