MercoPress. South Atlantic News Agency

Argentine economy expanding at 9% with strong activity in all sectors

Government spending and strong performance from Argentina’s main partner Brazil

Argentine economic activity surged 11.1% in June over a year ago which means GDP in the first seven months of 2010 expanded 9%, according to figures released by the country’s National Statistics Institute, Indec.

However compared to May activity was down 0.6%, the first time since the steady rise which begun in September 2009. Data refers to the Monthly Economic Activity Estimates published by Indec and which is an anticipation of the quarterly performance.

The 11.1% June expansion is the second consecutive two digits percentage in 2010 and the second highest in the last five years.

The report shows that the farming sector harvested a record crop while industry in June advanced 10.1%. Construction had a similar dynamism and public utilities, 11.6%. The surge in the economy was also reflected in foreign trade with exports increased 22% and imports 40%.

However industrial production in July increased 7.9% year-on-year according to the Monthly Industrial Estimate, (accumulating 9.2% in the first seven months of the year), which is less than forecasted.

Industrial production in July was affected somewhat by energy shortages, think tank Orlando J Ferreres & Asociados said. During cold spells, when demand for natural gas spikes, the Argentine government frequently diverts supply to residential users, sacrificing production for home heating.

Consumer spending and manufacturing exports to Brazil, strong prices for the soy bean bumper crop, heavy government spending and the weak currency are helping to fuel a strong expansion.

Argentina is a leading global agricultural supplier and ranks as the world's No. 3 soy exporter and the top world supplier of soy oil and meal.

“These numbers confirm that this is a year in which the Argentine economy is growing strongly,” said Miguel Kiguel, a former deputy finance secretary. “The rise of Brazil and the price of soy have been very important.”

However longer-term prospects for local industry are clouded by high inflation, estimated by private economists at between 25 and 30% annually, and surging wage demands that eat into the local currency's competitive edge.

Nevertheless so far in 2010 compared to last year car manufacturing is 50% higher and steel production 45% up.

Argentine Economy ministry raised expectations for GDP expansion this year to 7%, up from the 2.5% growth forecast in the 2010 budget. Private economists are also edging their forecasts higher, with some seeing Argentina's economy expanding by up to 8.5% in 2010.