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Economy
decelerates in third quarter
In
September, the monthly indicator for economic activity (EMAE,
Estimador Mensual de Actividad Económica) increased 6.8% over the
same month last year. The result was well above the 5.7% growth
registered in August (previously reported: +6.4% year-on-year), and came
in broadly in line with market expectations, which had economic activity
expanding 6.9%. A month-on-month comparison however, does not
corroborate the acceleration suggested by the annual figures, as the
economy contracted 0.17% over the previous month in seasonally adjusted
terms, contrasting the 0.45% expansion registered in August. As a
result of the monthly reading, annual average growth in economic
activity inched down from 7.9% in August to 7.8%. Based on the monthly
data, the economy expanded 6.7% in the third quarter over the same
period last year. The figure was down from the 7.5% expansion
registered in the second quarter of 2008. More detailed final data for
third quarter economic growth will be published on 18 December.
Government announces stimulus package despite precarious finances
While
the outlook for the economy for this year remains stable, underpinned by
strong growth in the first half of the year, growth prospects for next
year are deteriorating rapidly. Preliminary figures show that the
economy already slowed somewhat in the third quarter and more recent
data indicate that economic activity is likely to decelerate further in
the coming quarters. In November, the consumer confidence index (ICC)
published by the Universidad Torcuato di Tella (UTDT) fell from
40.1 points in October to 39.1. As a result, the index falls further
behind the 50-point threshold that separates optimism from pessimism,
suggesting that private consumption will likely weaken in the months
ahead. In addition, the global downturn will curtail external demand
and lower prices for commodities, thus eroding Argentina’s export
revenue. Consensus Forecast Panellists
currently expect exports to plummet from 30.2% growth this year to a
7.0% contraction in 2009. Next to
negatively affecting demand for commodities, the global economic
slowdown is likely to take its toll also on the domestic side of the
economy, mainly through the evaporation of confidence in the Argentine
peso. Since the beginning of October, the currency depreciated
7.1% in nominal terms to reach 3.369 pesos to the US$ by the end of
November. The rapid depreciation of the
currency not only threatens to affect savings and discourage foreign
investment, but could also fuel already high inflation, thus hampering
prospects for private consumption. Confidence in Argentinean assets
declined further amid the planned nationalisation of private pension
funds, which was recently approved by the Senate. The nationalisation
will provide the government with funds to meet debt obligations falling
due next year and thus provide at least a short-term relief for a
country that has limited access to financial markets since its general
default in 2001. Nonetheless, the take-over has alarmed investors and
sent stock markets plummeting as the nationalisation is feared to be a
plan of last resort in order to avert a second general default in less
than a decade. In the same vein, in the two days following on the
announcement of the pension fund nationalisation, the spread of
Argentine bonds over comparable U.S. treasury bonds rose a staggering
520 basis points. Although the spread has narrowed somewhat since then,
by the end of November it still stood 769 basis points higher than at
the end of September. Government finances are likely to come
increasingly under pressure as tax revenues will diminish significantly
next year in the wake of falling commodity prices and weaker domestic
demand. In addition, the government recently unveiled a US$ 21 billion
public spending plan, intended to counter the effects of the global
economic slowdown through the execution of massive infrastructure
projects. The package came on top of an economic stimulus plan
announced by President Fernández, consisting of investment
incentives and tax cuts on capital, intended to spur domestic demand and
repatriate capital that has fled the country in the wake of the
confidence crisis. The government expects the economy to grow 6.5% this
year and 4.0% in 2009. Consensus Forecast panellists see full year
growth reaching 6.2% this year. In 2009, panellists expect the economy
to plummet to a paltry 2.0% expansion, which is 0.5 percentage points
below last month’s Consensus.
Inflation moderates further in October
In
October, consumer prices added 0.43% over the previous month. The
result was a notch below the 0.51% price increase observed in September
and, once again, beat market expectations, which had consumer prices
adding 0.60%. The monthly price increase was broad-based, as eight out
of nine price categories increased over the previous month. In
particular, prices for clothing rose sharply. As a result of the more
moderate reading, annual headline inflation fell from 8.7% in September
to 8.4%. However, the official inflation data published by the National
Statistics Institute (INDEC, Instituto Nacional de Estadística y
Censos) have been met with suspicion ever since the controversial
change in the methodology to measure price variations implemented at the
beginning of 2007. The new consumer price index, which was introduced
in May of this year, has not been able to dispel the suspicions, as the
official inflation figures continue to be well below estimates of
various independent analysts, with estimates for annual inflation
currently ranging between 20% and 25%. However, by any measure, price
pressures are likely to ease somewhat in the coming months, as a result
of falling commodity prices and cooling domestic demand. According to
next year’s budget, the government expects inflation to average 8.0% in
2009. Consensus Forecast panellists see official inflation at 8.6% by
year end, which is down 0.3 percentage points from last month’s
forecast. Next year, participants estimate official inflation to
reach 9.5%.
However, a smaller sample of panellists estimates
actual inflation to total 22.4% this year and 18.4% in 2009.
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