MercoPress. South Atlantic News Agency

Argentina admits slower economy; blames global crisis, drought and Brazil’s low growth

The Argentine central bank forecasts a recovery in the second half of the year

Argentina acknowledged the slowing down of the economy as the result of the global crisis, prolonged drought and a lesser growth rate from Brazil, according to a report from the Central Bank released this week.

The Macroeconomic and Monetary Policy report says that despite a deceleration of economic activity in the second quarter of 2012, an upturn is expected in the second half of the year which will enable to register another growth year although at a slower rate than in 2011.

The slower expansion rate is attributed to a fall in exports motivated mainly in the ongoing European situation (and uncertainty) with a contraction of global demand plus the severe drought that hit the 2011/2012 crop, only partially countered by the recent strong recovery in commodities prices.

At the same time a slower growth in Brazil, Argentina’s main trade partner has had a relevant impact in the performance of Argentine industry.

The Brazilian economy has been slowing down since last year and only expanded 0.2% in the first quarter of the year, even when the Central bank president Alexandre Tombini trusts there will a strong recovery in the second half of the year.

Last June Argentine exports dropped 10%, totalling 7.121 billion dollars, while industrial activity contracted 4.4% in June compared to the same month a year ago, according to the Indec official stats.

Furthermore during the second quarter there was a reduction in the rate of Gross domestic fixed investment compared to the three previous quarters, which can be explained by a moderate purchase in production equipment and a weak performance of investment in the construction industry, adds the report.

It also points out that tax revenue jumped 22% year to year in the second quarter, but genuine tax resources from the provinces slowed down as so did the transfers from the federal government.

The report puts domestic private demand at the heart and dynamo of the economy, defends controls and limits on the purchase of foreign currency and emphasizes that the priority is “to invest those funds to specific purposes linked to productive activities”.

Finally the report also underlines the use of central bank international reserves to honour debt payments, an issue that remains controversial and for which the charter of the Central bank had to be modified.

“Besides acting as re-insurance for international liquidity, the use of central bank reserves has helped to cancel public debt in a world context of very low returns for those reserves and of great volatility in the international capital market conditions” reaffirms the quarterly report.