MercoPress. South Atlantic News Agency

Argentine economy expands 1.3% in February over a year ago, says government

Agriculture's contribution was particularly strong while manufacturing and construction were down

Argentina's economy expanded 1.3% in February compared with the same month a year ago, the government said on Tuesday, a result that outpaced market expectations. The government's stats office Indec also revised January economic activity to positive 1.4% from a previously reported expansion of 1.2%.

 The release differs from a poll of estimates by Reuters which indicated an average 0.8%, mainly because of a poor manufacturing performance.

The government of President Cristina Fernandez announced at the end of March that the base year for the economic activity index (EMAE) would now be 2004 and no longer 1993. According to this change GDP last year expanded 3% compared to 5.1% under the previous system.

Since the mechanism of the new system has not been informed officially this could help to explain the difference between the private estimates and the official EMAE release.

According to Indec domestic demand and agriculture were on the positive side while manufacturing and construction on the down side. In February industrial production was down 0.6%, mainly because of a slump in the car industry and in construction materials.

Overall construction contracted 5.2%, with the main erosion from the private sector, down 6.5%, while public works actually increased 3.3%. Public utilities continued to be strong, up 6% in the last twelve months because of mobile phones.

Retail sales in shoppings and supermarkets was up 30.5% but adjusted for inflation showed a stalling tendency. Agriculture on the other hand was particularly dynamic since it is harvesting time and total grains and oilseed crop is expected to be above 90 million tons.

“Economic activity in February should continue to decelerate because of the noise and uncertainty generated by the strong devaluation of the Argentine Peso, plus the fall in exports, lesser industrial and construction activities and a domestic demand contraction” had anticipated UBS in its weekly report.

The Argentine Peso suffered a devaluation of 18% during January.

After strong sustained growth in the last decade, Argentina is facing a stubborn slowdown because of inflation, capital flight and hurdles to foreign trade which discouraged investments.

Private consultants which not so long ago were forecasting the Argentine economy would grow 2% in 2014 are modifying their estimates and expect a contraction that could reach 0.3%. Annual inflation was above 25% in 2013 and expectations indicate the rate could jump to over 30% this year.

However the new GDP methodology applied by the government will be reviewed annually by the IMF following the controversy over the 2013 growth data.