Weekly Report - 2 March 2004

ARGENTINA | Industrial recovery continues. Industrial activity in December was 3.2% higher than in November and 12% up on a year earlier. Since the trough of the recent crisis, in March 2002, industrial output has increased by 31%. It is worth noting that annual increases are now being calculated from higher baselines than until recently: the monthly industrial index, EMI, has already recovered much of the fall that took place between mid-2001 and early 2002. At present, industrial production is 7% lower than in June 1988, the most recent pre-crisis peak.

ARGENTINA | Import surge signals reactivation. Imports in January reached close to US$1.6bn, about twice as much as a year earlier. Even with exports, at US$2.28bn, running 5% higher than in January 2003, this halved the trade surplus, to US$680m. The import bracket registering the highest rate of increase over the year, 433%, was that of capital goods. Imports of intermediate products, following the upturn in industrial output, rose by 39%; those of consumer goods, by 111%.

BRAZIL | Worse than predicted. Brazil's GDP actually contracted, by 0.2%, last year -- the worst performance since 1992. This translates into a 1.5% shrinkage of per-capita GDP. The main depressing factor was a 3.3% fall in household consumption. Also down were services (-1%) and industry (-0.1%). The latter was the result of an 8.6% fall in construction — bad for jobs — not fully offset by increases in all other industrial subsectors. Unemployment has increased slightly, from 10.9% in December to 11.7% in January. Of the 2.4m jobless, 47.5% are in São Paulo. The central bank, a week after deciding to halt the reduction of interest rates, let it be known that its main worry is inflation, and that `preliminary data for February suggest that inflation this month will also be significantly higher than anticipated.' This has been read as a signal that the rate will be held unchanged at least for another month — which will keep the brakes on reactivation.