The GDP consensus for 2013 has risen from last month, with the improvement in the outlook likely due to a bumper Q2 soybean harvest and robust fiscal spending ahead of October’s legislative elections. The former is good news for the latter: the government relies heavily on high prices for agricultural exports to oil the public-spending machine. With the country barred from the international credit markets and central bank reserves somewhat depleted, the authorities are increasingly desperate to hold onto US dollars in order to pay down debt. Hence last year’s foreign exchange and capital controls in a bid to stem capital outflow. These restrictions are preventing local business from paying importers. Nevertheless, June’s economic activity indicator soared by 6.4% (y-o-y), following 7.8% growth in May, 7.0% in April and a muted 2.8% showing in March. While official data is greeted with scepticism by independent observers, a general uptick in activity has been reflected in merchandise exports rising from US$17.4bn in Q1 to US$23.6bn in Q2, thanks to lucrative grain commodities. Our panel’s merchandise trade forecasts have faltered a little, however, as the downturn in neighbouring Brazil in particular is a concern. Meanwhile, industrial output jumped by a solid 3.9% (y-o-y) in June, lifting the Q2 outturn from a 1.3% (y-o-y) contraction in Q1 to a +3.6% gain. Our panel’s production outlook remains unchanged, though, due in part to July’s disappointing automobile output report.
Official inflation hit 10.6% (y-o-y) in July, though the true rate was probably closer to 24.8%. The government’s unwillingness to admit to high inflation is belied by average wage growth which advanced by 27.0% (y-o-y) in Q2. Agreements with retailers to keep prices low are coming to an end, though, and price pressures are already picking up.
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