Industry soars 8.9% in June

Economy keeps on showing clear signs that it is growing at a steady pace. This performance is boosted by current international context (despite rate and oil hikes as well as conflicts). It should be taken into account that the entire world has moved from a 2.5-per cent growth in 2001 to almost 5 per cent this year. North America, the main economy of the world, more than tripled its growth rate and it has moved from 1 per cent to 3.5 per cent. Growth is guaranteed now. In addition to this, purely domestic factors are observed, offering the possibility of making good use of this prosperity. The main factor (and government has internalised it) is primary surplus. Argentine Central Bank is also behaving appropriately. Are there signs of slowdown? If we take into account that in 2005 GDP increased 9.2 per cent to leap lower than 8 per cent in 2006, we can undoubtedly say that there are. Alarm should not be spread, but factors like dearth of a strong foreign investment do have a strong influence. In fact, any reasonable 2007 forecast is made envisaging a more-than-6-per cent rise. Industrial activity data released on Monday was positive, considering that market expected an only 7.5-per cent hike.

Industrial production grew more than expected in June. In interannual terms, variation reached to 8.9 per cent against the 7.5 per cent forecasted by economists.

Official figure of the Monthly Industrial Estimator (EMI, in its Spanish acronym) will be disclosed on Tuesday by the Argentine Statistics Agency (INDEC, in its Spanish acronym), thus confirming a significant increase in manufacturing activity.

Data will be used by government to show that economy is far from slowing down, as different analysts have been warning. However, medium-term trend (despite specific data to be revealed on Tuesday) indicates that 2006 growth level will settle nearer to 7.5 per cent or 8 per cent annual than to 2005's 9.2 per cent.

As regards industry situation, there are two key components boosting activity: car manufacture (encouraged by local consumption and export) and cement sales, in view of robust construction hike.

One of the main concerns in private sector over high expansion is that inflationary pressures are stirred up. This phenomenon arises because demand growth is not requited by a similar investment increase.

Argentine Economy Ministry's forecast keeps on aiming at a 6-per cent GDP expansion for 2006. However, these prospects have been clearly exceeded.

Firmness

On the other hand, INDEC will reveal on Wednesday the Monthly Economic Activity Estimator (EMAE, in its Spanish acronym), which would show a higher-than-8-per cent rise in May. This shows that economy expansion is still steady, though not at the "Asian rate" levels posted in the last three years.

One of the issues closely followed is investment development, since possibility of holding high GDP hike levels will depend on this variable. After a poor first quarter, a significant rebound was posted in April and May. However, according to preliminary data, a plateau was verified in June again. This stems from capital goods import data (yet not released), which hit lower than forecasted.

Current situation of international markets does not seem to have affected, at least for now, activity rhythm. With a firm dollar and relatively-low interest rates (in deposits as well as in loans), financial sector status does not hit, for the time being, actual economy.

Moreover, high growth levels are crucial to keep higher-than-25-per cent collection rise, managing to hold fiscal surplus above 3 per cent of GDP. This is an aspect followed mainly by those holding positions in public bonds, since a high fiscal saving level entails greater capacity to face debt payment.