Argentine economy surges, current account shrinks

(Reuters) - Argentina’s economy grew by a lightning-quick 9.2 percent last year, but a surge in imports fed by sizzling domestic demand eroded the current account surplus.

The government said that gross domestic product also expanded 9.2 percent in the fourth quarter versus the same period of 2009 and grew 2.5 percent from the third quarter, showing a sustained rebound in Latin America’s No. 3 economy.

Argentina had one of Latin America’s swiftest growth rates last year, although private analysts say official data exaggerates the scope of the expansion.

Private consumption jumped 11.5 percent in the fourth quarter, compared with the year-earlier period, according to the INDEC national statistics institute.

Argentina’s economy is driven by robust consumer spending, lucrative grains exports and industrial production, led by the automotive sector.

The trade surplus, however, has been shrinking as imports grow at more than double the rate of exports. High inflation is pushing up local production costs, and a fairly stable exchange rate reduces the relative cost of imports.

Inflation is masked in Argentina by widely discredited official data. Private estimates put annual inflation at around 25 percent versus the 10 percent reported by the government.

Analysts have said the inflation data also distorts economic growth figures, which are adjusted for inflation.

“HARD LANDING”

Strong growth is good news for President Cristina Fernandez, who is expected to run for a second term in October’s presidential election. She is stoking the economy with loose monetary and fiscal policy despite inflation.

“This raises the risk of a hard landing of the economy in 2012,” Goldman Sachs senior economist Alberto Ramos wrote in a research note.

Ramos wrote that he expected the trade surplus to shrink to $11.4 billion in 2011 from $14.7 billion last year “as domestic demand is expected to remain in overdrive due to lax macro conditions that stimulate import growth above projected export growth.”

That is, in turn, eroding the current account, which registered a deficit of $194 million in the fourth quarter compared with a surplus of $1.41 billion in the same period a year earlier, Friday’s official data showed.

Bigger dividend payments and profit transfers by foreign companies also contributed to the deficit, the government said.

For the full year, the current account surplus shrank sharply to $3.57 billion last year from $11.13 billion in 2009. The government revised its figures for the 2009 data.

“There’s a relationship (between growth and the current account deficit) because of the demand for imported goods,” said Rodrigo Alvarez, chief economist at the Buenos Aires-based consulting firm Ecolatina.

“Argentina is moving toward a deficit in the current account. This year it should be even if things go well, but it will show a deficit next year,” he said.

The current account is the broadest measure of a country’s foreign transactions, encompassing trade, services and an array of financial flows, including interest payments. Analysts use this data to gauge reliance on foreign capital.