Economic activity trudges along in February
Encouragingly, February was the third consecutive month in which the EMAE registered an improvement in seasonally adjusted, month-on-month terms. However, at the disaggregated level, the data paint a mixed picture of the economy. Sectoral data are only available in non-seasonally adjusted terms, which complicates analysis somewhat. Only three out of the 15 sectors covered in the EMAE registered positive year-on-year growth. Of the three sectors, agriculture continued to be the best performing, growing by 6% year on year as activity recovers from last year's drought. Production of key crops including soybean, maize and wheat, overshot expectations and in some cases reached levels notseen since the last commodities supercycle. This should help to provide a strong statistical boost to activity overall, especially in the peak harvest months of April-June
The extent to which economic recovery will seep into other important economic segments remains to be seen. Services, in particular, have suffered as a result of weak private consumption.The latest INDEC data show that formal-sector salaries grew by 35% year on year in February, well below consumer price inflation of 51%. Consequently, commercial activity remained strongly in the red, contracting by 12% year on year.
For its part, industrial activity remained subdued, but showed signs of improvement. The declines in both the manufacturing and construction sectors were markedly less in February, compared with the previous month. Indeed, manufacturing industrial production rose by 2.4% in seasonally adjusted month-on-month terms, while construction activity showed a much greater improvement, of 8.4%.
However, it is important to recognise that these sequential improvements materialised at a time of relative macroeconomic stability; interest rates were falling in both January and February, while the peso experienced relative stability. A deterioration in macroeconomic conditions in March and April could produce relatively weak data for those months.
Impact on the forecast
Our forecasts had already assumed that economic recovery would be slow and uneven; despite the modest growth in February, which was in line with our expectations, there are downside risks to our forecasts stemming from the potential for higher interest rates and higher inflation to subdue activity in the coming months to a greater extent than we currently expect.