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Argentine economy surges, current account shrinks

Source: Reuters
By: Luis Andres Henao
03.18.2011

Argentina's economy grew by a lightning-quick 9.2 percent last year, but a surge in imports fed by sizzling domestic demand eroded the current account surplus.

The government said on Friday that gross domestic product ARGDP=ECI also expanded 9.2 percent in the fourth quarter versus the same period of 2009 and grew 2.5 percent from the third quarter, showing a sustained rebound in Latin America's No. 3 economy.

Argentina had one of Latin America's swiftest growth rates last year, although private analysts say official data exaggerates the scope of the expansion.

Private consumption jumped 11.5 percent in the fourth quarter, compared with the year-earlier period, according to the INDEC national statistics institute.

Argentina's economy is driven by robust consumer spending, lucrative grains exports and industrial production, led by the automotive sector.

The trade surplus, however, has been shrinking as imports grow at more than double the rate of exports. High inflation is pushing up local production costs, and a fairly stable exchange rate reduces the relative cost of imports. [ID:nN23144248]

Inflation is masked in Argentina by widely discredited official data. Private estimates put annual inflation at around 25 percent versus the 10 percent reported by the government.

Analysts have said the inflation data also distorts economic growth figures, which are adjusted for inflation.

"HARD LANDING"

Strong growth is good news for President Cristina Fernandez, who is expected to run for a second term in October's presidential election. She is stoking the economy with loose monetary and fiscal policy despite inflation.

"This raises the risk of a hard landing of the economy in 2012," Goldman Sachs senior economist Alberto Ramos wrote in a research note.

Ramos wrote that he expected the trade surplus to shrink to $11.4 billion in 2011 from $14.7 billion last year "as domestic demand is expected to remain in overdrive due to lax macro conditions that stimulate import growth above projected export growth."

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