South American economic data mostly sour in first half

Argentina: Argentina held a mid-term election this past Sunday, June 28. It turned into a kind of a referendum on the government’s handling of the economy. The result was not pretty and the government lost its majority in both houses. There is no question that Argentina’s economy has not been in a good condition for a while now and that it has lost its preeminent status in the region, Indeed, Chile has overtaken Argentina in income per head. Even tiny Uruguay now exports more beef than its neighbor on the other side of the River Plate, which largely thanks to investments by Argentines who fled high taxation and inconsistent enforcement of the law in their own country. Almost nobody believes the official government-issued numbers anymore due to serious doubts surrounding the independence and impartiality of the country's statistics office. The Latin American Economic Investigation Foundation (FIEL) estimates industrial production having declined -12.2% for the year and -8.6% in May compared to the previous year. Imports and exports have plunged in Q1 falling by around US$4.2 billion each. The trend continued in May even though a huge trade surplus was recorded because of a steep fall in imports. Unemployment in the poorest suburbs of Buenos Aires has reached 17%.

    Steel Production: 269,000 mt in May or -46.2% over last year. In the first five months of 2009 1.348 million mt were produced or -43.1% from last year


Brazil: South America’s largest and the world’s tenth largest economy manages its first recession since 2003 the way it has managed its economic affairs since President Lula has taken over: surprisingly well. Latest indications point to a mild contraction of  GDP for the year. Central Bank officials estimate -0.5%; OECD estimates run around -0.8%. The benchmark interest rate has been lowered to 9.25% and is expected to be taken down another notch to 8.75% next month where it will probably stay for the duration of the year. Taxes have been cut, the government injected $100 billion into money and currency markets and consumer spending is up. But industrial production has fallen by 15% in the first four months of 2009 and Brazil has lost 800,000 jobs between last October and February. The currency has strengthened again and will have a negative impact on exports.  

    Steel Production:1.894 million mt in May or -36.3% compared to last year. In the first five months of the year 8.642 million metric tons were produced or -40.6% to last year.


Chile: The government is pumping yet more money into the economy to reverse the recession. A US$4.0 billion stimulus package followed a $3.0 billion program from March. The benchmark interest rate remains at a record low of 1.25%. Still, April was the fifth consecutive month that showed a contraction in GDP. The trade surplus in May was the highest in 13 months because imports had fallen by 42% compared to a year earlier. The copper price has rallied lately. The June 26 quote on the LME was $4,989.40 per mt.

    Steel Production: 95,000 mt (e) in April (-37.3% compared to last year). In the first five months of the year 431,000 mt were produced or -41.0% compared to last year.


Venezuela: The official growth number of GDP is viewed skeptically by many analysts. Construction has been reported growing 3.6% in Q1 but car production was down by 35% in May compared to last year. Some economists estimate that Venezuela needs a crude oil price of at least US$90 per barrel in order to maintain its ambitious social programs. Reality is far from it even though the international crude oil price shows an upward trend and is currently at $70 a barrel. But Venezuelan crude is heavy and sulfurous and sells at a discount of around $10 per barrel. Rumors in Caracas point to a devaluation of the currency in the near term. Currently, it is fixed to the USD at 2.15 but on the unofficial “parallel" market it has fallen to 6.50.

    Steel Production: 370,000 mt (e) in May (+4.0% compared to last year). In the first five months of the year, 1.822 million mt were produced or 8.9% more than last year.

Colombia’s GDP contracted in all four quarters of last year. It fell -0.6% in Q1. Industrial output fell -7.9% in the same period. Peru’s economy grew 1.8% in Q1 and the inflation rate is a moderate 4.21%. Uruguay’s GDP was up +0.8% in Q1.