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Economy
decelerates in February
In
February, the monthly indicator for economic activity (EMAE,
Estimador Mensual de Actividad Económica) rose 8.8% over the same
month the previous year. The result was down from the 10.0% annual
growth registered in January but slightly beat market expectations,
which had economic activity expanding 8.6%. The deceleration compared
to the previous month was primarily caused by a slowdown in industrial
production, which grew an annual 5.8% in February, less than half the
robust 12.3% expansion observed in January. A month-on-month comparison
corroborates the deceleration suggested by the annual figures, as the
economy contracted 0.44% over the previous month in seasonally adjusted
terms, which contrasted the 0.25% expansion registered in January. In
spite of the slowdown, annual average growth in economic activity
remained unchanged at January’s 8.8%.
Resilient exports to compensate for weaker domestic sector
This
year, the economy is set to moderate from last year’s strong growth,
primarily as a result of a softer domestic sector. However, a resilient
external sector will partially compensate for the moderation in
consumption and investment and as a result, economic growth will remain
more than healthy. In fact, Consensus Forecast panellists raised their
forecast for full-year economic for the seventh consecutive time this
month, from the 6.5% expected last month to the current 6.6%. Recent
indicators on the domestic side of the economy show mixed results but in
general corroborate the notion of a rather moderate slowdown. In April,
27.3% of businesses expected domestic demand to improve in the second
quarter, whereas only 9.1% foresaw a deterioration. Furthermore, after
having plummeted in March, the consumer confidence index (ICC) published
by Universidad Torcuato di Tella (UTDT) inched up in
April, from 45.5 points in March to 45.6. Although the total index
remains well below the critical 50-point threshold that separates
optimism from pessimism, the April reading reflected a 4.4% increase in
macroeconomic expectations. The rise, however, was almost completely
offset by deteriorations in the other two categories comprising the
index – the acquisition of durable goods and personal situation.
Finally, in March, industrial production expanded a meagre 3.0% over the
same month last year, which constituted the slowest pace in more than
five years, notwithstanding the July 2007 figures, when energy shortages
forced the government to ration electricity for companies. However, the
more subdued March figure can be largely explained by the massive
farmers’ strike that strongly affected output in the food industry. So
far, the conflict between farmers and the government over the increase
of export taxes on some of the country’s main export products remains
unresolved. On 30 March, farmers called a temporary end to the strikes
in order to negotiate with the government, but so far no mutually
satisfactory solution has been found. Meanwhile, on 24 April, Minister
of Economy Martin Lousteau resigned due to the farming conflict – which
is seen to be the greatest challenge to President Cristina Fernández’
government so far – and the continued controversy over the official
inflation data. Carlos Fernández, head of the Argentine tax agency, was
appointed as his successor. The government expects the economy to
expand 7.0% this year, far above the 4.5% growth initially estimated in
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
0.1 percentage points up 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 10.6% by year end, which
is 0.4 percentage points down
from last
month’s estimate. Next year, participants estimate inflation to reach
11.6%.
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