MercoPress. South Atlantic News Agency

International banks forecast slower growth in Argentina

Economic activity in Argentina is forecasted to moderate in the second half of this year and in 2008 as investment decelerates in spite of strong domestic demand and overseas favorable conditions, according to the International Institute of Finance, (IIF) the lobby representing the world?s largest banks.

IIF points out that the main problem is inflation, estimated at double the official rate published by the Argentina government, and expected to accelerate, as President Nestor Kirchner will insist on an expansive macroeconomic policy ahead of the coming October presidential election. According to IIF, Argentina's economy is expected to expand 7.6% this year and 6.2% in 2008, after having grown 8.5% in 2006. "The weakening of the construction activity which represents half of the new capital formation, has contributed to the deceleration of investment growth". IIF also estimates that private domestic demand will not support the current rate of expansion and that underlying inflation pressures can be expected to erupt as a consequence of restrictions to production capacity. The bankers? lobby questions the official figure of the retail prices index in the last twelve months to May, announced at 8.8%, compared to the 9.8% of last December. "The current rate of inflation together with labor salary nominal agreements in the range of 18 to 20%, are evidence that real inflation far exceeds official inflation by a considerable margin". The current rate of growth together with a weak political opposition should enhance the presidential candidacy of Mr. Kirchner of his wife Senator Cristina Fernandez Kirchner in the first round of voting next October. IIF also describes the official public utilities rates policy as "dysfunctional but popular" which has led to the growing shortage of electricity.