Thanks to investment and consumption, the growth of the economy is consolidated

Thanks to the biggest increase in investment in eight and a half years and the most important acceleration of private consumption in almost three years, economic growth is consolidating, although it is still at levels below the peak that registered in 2015.

Indec released its GDP evolution report for the second quarter of the year and brought optimism to Casa Rosada: the economy grew 2.7% compared to the same period in 2016 and accumulated a 1.6% increase in the first half. It was the second quarter of the year of growth – in the previous one the growth was 0.4% – and the third consecutive in the measure seasonally. This latest calculation showed an increase of 0.7%, a figure lower than those recorded in the previous two quarters. The detail shows that investment grew 7.7% year-on-year, while private consumption rose 3.8%.

Beyond the general level, another good news that the government can show before next month’s elections is that almost all sectors – except mines and quarries and electricity, gas and water – showed positive data. Among the most important, especially in the generation of employment, are industry, construction, and commerce.

More notes to understand this topic
The Government believes that there is a “healthy growth path”
Gross domestic product (GDP) was in the second quarter of 781.78 billion pesos. A year ago it had been 761,344 million. And in 2015, of 790.295 million.

In global demand, there was a 7.7% increase in gross fixed capital formation (which in current terms is taken as the investment of an economy), a rise of 2.9% in public consumption and growth of 3.8% of private consumption. Exports of real goods and services, meanwhile, were the only item that fell: -1.2% year-on-year.

“The variation in private consumption is explained by an increase in the consumption of domestic services (passenger transport, Internet, and telecommunications) and a strong growth of imported consumer goods and services (automotive, pharmaceuticals and tourism expenses abroad ), “explained the Indec. In seasonally adjusted terms, in relation to the first quarter of this year, private consumption increased by 3.8%, public consumption rose by 1.4% and investment by 8.3%. Exports fell by 7.1% and imports grew by 4.2%.

The increase in investment, according to the document of the statistical agency, was due to the 11.5% increase in investment in construction, a 9.4% decrease in other constructions, a 5.5% increase in machinery and equipment and a 14% increase in transportation equipment. Within machinery and equipment, the national component grew by 4.9% and the imported component, 5.9%. In transport equipment, the national component decreased by 4.2% and the imported rose by 42.7%.

“The GDP has three-quarters growing at an average rate of 1%, which, annualized, implies a growth rate of 4.1%,” said the Ministry of Finance, which leads Nicolas Dujovne. “The growth of investment confirms that we are beginning to pass a period of sustained growth,” they said.

According to private analysts, “The seasonally adjusted variation with respect to the first quarter marks not only a marked acceleration of investment in the margin but also generates very good forecasts for the remainder of the year,” said Dante Sica, director of the consulting firm Abeceb.

“In seasonally adjusted terms, investment climbed a phenomenal 8.3% in the second quarter compared to the first three months of the year,” said Lorenzo Sigaut Gravina, director, of Ecolatina. “It is also worth noting that in the first half of the year investment is only 2.4% above the first half of 2015,” he said.

“The strong expansion of gross fixed capital formation is mainly explained by imports of transportation equipment and construction,” said Sigaut Gravina. In the first half of the year, investment accumulated an expansion of 5.6%.

Generalized improvement

“Growth is increasingly felt in all sectors, and that is seen in consumption, which grows faster and faster. There was no increase in consumption of this magnitude since the third quarter of 2013,” they completed in the Treasury.

For Labor, Capital & Growth (LCG), that consumption contributed 1.6 percentage points to the improvement of GDP. “This number may be striking, but it does nothing more than confirm what we have said for a long time: the changes in consumption patterns made many of these indicators obsolete by not reflecting the demand in the wholesale and proximity channels and the boom of e-commerce, “Sica said. The economist added that the fall in exports and increased imports may be another “good omen”: the return of private investment.

“We corrected our growth forecast for 2018 to 2.4 or 2.5% year-on-year.” In this scenario, new investments may be achieved. The lack of competitiveness will continue to be a drag on net exports, “they concluded in the consulting firm LCG.

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