…and the Economy Keeps Growing…

The Argentine economy regained some growth momentum in the second quarter.

GDP growth increased to 10.1% (Q205 to Q204), while investment provided the largest surprise as it increased by 24.1%. This is good news for unemployment, consumer confidence and fiscal revenues just as we are getting close to the elections, but most likely it will imply more inflationary pressures in the near future, as the potential level output is not keeping pace with actual growth.

The economy still seems to be moving slowly towards a soft-landing after three years of very strong growth, but the performance for 2006 is expected to be on the positive side with growth in the 5% range. Economic growth is also likely to be slowed down by a tightening in monetary policy, especially if inflation does not recede. A major question for next year is whether there will be an improvement in the business climate that will induce an increase in investment to reach 22 or 23% of GDP in order to shift the country to a path of high, sustainable growth.