MercoPress. South Atlantic News Agency

Argentine economy forecasted to enter recession in second half, but could still end 2012 positive

Land earmarked for construction has dropped significantly

The odds that Argentina's economy will enter a recession in the second half of this year held above 95% for a second consecutive month in the closely followed monthly leading indicator published by Torcuato Di Tella University, UTDT.

The odds of a recession in the university's May report rose to 99% from 98% in April. UTDT said that Argentina has always entered recession within six months after recession odds exceeded 95%.

“The results of the latest surveys confirm that the Argentine economy will enter a recessive phase in the second half of the year,” UTDT said in its report published Tuesday.

UTDT leading indicator is conceptually similar to the Conference Board index in the U.S., which tries to predict turning points in the economy.

The indicator has forecast turning points in the economy for 18 years. On average, it has anticipated recessions 4.33 months in advance and growth periods 2.66 months in advance.

Argentina's economy is expected to expand at a much slower pace this year due to high inflation, soft demand for Argentine goods in Brazil and a sluggish global economy.

The country’s crop was less than expected; Brazil has not recovered as expected and some domestic policies have increased uncertainty among economic agents.

After 8.9% growth in 2011, the government is expected to report economic growth of 4.1% this year, according to the median estimate of more than 50 banks, economic research firms and universities surveyed by the Central Bank of Argentina.

UTDT leading indicator fell 5.1% on the month to 178.20 in May, and dropped 18.9% on the year. UTDT diffusion index rose to 50% in May from 40% in April, indicating that five of the 10 series that constitute the index were in expansion and the other five contracted.

In seasonally adjusted terms, industry posted the biggest drop in activity, with declines observed in capacity utilization, the metal-working sector and land earmarked for construction. Adding to uncertainty the series with the biggest increase was bankruptcies.

“This is the second month running that odds are above 95%. Data from June show that recession is imminent unless some extraordinary shock occurs”, said Guido Sandleris, head of the Finance Research Centre from UTDT.

Sandleris added that a convergence of factors such as the slowdown in Brazil, fears about Europe and domestically restrictions to imports that have limited input for factories and money exchange controls scare away investments.

However the fact that “we are facing recession does not mean that the country could end 2012 with positive growth since the two first quarters have been positive”, cautioned Sandleris.

The Argentine government is betting on 4.1% expansion this year but private estimates range between 2% and 3%.