Is economic growth slowing down?

EL CRONISTA – The quarterly data of Gross domestic product (GDP) arrives somewhat late. Right now, in March 2018, we only have information for the third quarter of 2017. If we look at this first graph, we can notice 2016 with negative growth rates but is improving, those that they become positive in the first quarter of 2017, and accelerate towards the second and third quarters. But what happens from then on? Is the economy still growing?

The INDEC has a complementary tool that allows anticipating the rates of variation of GDP. This tool is the Monthly Estimator of Economic Activity (EMAE Spanish acronym) and not only reflects the monthly evolution of economic activity but also allows observing it distinguishing the set of productive sectors at the national level.

The following graph shows the monthly results of the EMAE. If we compare it with the previous graph of the quarterly GDP results, a similar dynamic can be noted.

Negative growth in 2016 that becomes positive in 2017. But in this case, we also have data for the last quarter of 2017. The EMAE for October, November and December yielded results of 5.0%, 3.9% and 2.0%. The average is 3.63%, which allows us to imagine the fourth quarter with growth around that value.

The EMAE also allows us to advance the result of the year with a growth of 2.8% of GDP, which It implies that the Government will not have to pay the coupons to its creditors for presenting a growth rate below 3.0%.

If you now see the results by sector, you will notice that only 2 of the 15 sectors had negative results, “Transport and communications” and “Fishing”. The “Construction” sector, with a strong presence of public works, pushes economic activity upwards. Industries such as steel and metalworking, commerce and financial intermediation also support economic activity. The real estate sector-driven by loans-and agricultural production -including agricultural machinery and production of fertilizers and agrochemicals- also performed well in 2017.

One aspect that we highlight above and that we can not ignore is the deceleration of the activity of the last quarter of 2017. October, November and December show positive but decreasing rates. This is what turns on the alarms for 2018, added the fact of the drought and the bad forecasts for the harvest. If this trend continues, the level of activity would be far from the projections of analysts around 3% of GDP.

Regarding how 2018 started, the Orlando Ferreres consultancy offers another complementary index that measures the General Activity Level (IGA), with the particularity that we already have the January 2018 data.

The following chart compares the EMAE with the IGA, which not only allows us to observe a similar dynamic but in January the economic slowdown could be reversed.

Projection for 2018

2017 left us an economy recovered from the swings of recent years, but now the challenge is to initiate and consolidate growth, which requires greater investment efforts, today around 21% of GDP.

The good news is the economic recovery of Brazil that will push the automotive industry, particularly the production of pickups.

The bad news is in the drought, but it is not yet clear if it will have an important effect on the harvest.

It is risky to give estimates of growth in economic activity for 2018, but we believe that it could be around 2.5% per year.

Written by Adrián Ravier
An economist at the Libertad y Progreso La Pampa Foundation.
Published in Spanish by EL CRONISTA