MercoPress. South Atlantic News Agency

Conflicting reports on Argentine performance, but economy rapidly slowing

Poor crops, weak manufacturing and construction indicate a tough year ahead

Argentina's economic activity remained flat in June compared to a year ago, according to the latest release from the country’s questioned stats office, Indec. The EMAE economic activity index, a close proxy for GDP published on Friday showed a 1.1% expansion in June versus May and 2.5% in the first half of the year.

Argentina expanded 8.9% last year but growth is slowing sharply due to high inflation, a sluggish world economy, waning demand from top trade partner Brazil, lower grains output and the impact of new trade and currency controls that have dented confidence.

The Indec statistics institute said growth in the 12 months through June was 5.3%. However many economists believe the agency exaggerates annual growth by as much as 3 percentage points, while also drastically eroding inflation facts.

Although official growth data has been surprisingly negative in recent months - narrowing the gap with private estimates - the government's June figure stands in stark contrast to the 3.9% drop in economic activity measured by the Orlando J. Ferreres & Associates consulting firm.

In May, Indec reported the first year-on-year contraction since July 2009, when the world was grappling with financial crisis.

Industrial production sank in the month of June, dragged down by weak Brazilian demand for Argentine cars. In June 2011, economic activity grew 9.4% year-on-year.

The government of President Cristina Fernandez sent a budget to Congress which puts 2012 growth at 5.1%, although most economists think it will be much lower and could even show a contraction.

Economy Minister Hernan Lorenzino told reporters this week that global economic weakness was not helping Argentina, but he declined to say whether officials would cut the growth outlook.

The Orlando Ferreres & Associates report said that Argentina’s economic activity was up 2.1% in July over a year ago and 0.9% over the previous month.

“The dynamics of the services sector continues steady although with minimum variations since this month (July) they expanded 0.6% supported mainly by the financial intermediation sector”, points out the report.

The financial intermediation sector in July expanded 14.5% over a year ago but “was not enough to compensate for the fall in the production of goods, down 1.9% linked to a smaller farm crop and contraction of manufacturing and the construction industry”.

Manufacturing was down 2.3% year on, the seventh month running; retailing lost 2.6% and agriculture, 4.6%.