Argentina’s economy grows despite market woes

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Economic growth in Argentina continued unabated in spite of the trouble in the markets, and might even succeed in completing its fourth consecutive year of growth above 8 per cent, according to some estimates.

Continued high growth has been accompanied by falling unemployment, while inflation appears to have been stabilised for the time being, and could finish the year within the official target of 8-11 per cent.

Inflation is being kept in check by price “agreements” with businesses and tariff freezes for utilities, which although harming the business climate are expected to continue until elections due in October 2007.

Some economists fear the true extent of inflation is not represented in the official figures, and also warn of the dangers of rising government spending.

For now though, rising revenues because of strong economic activity are maintaining the fiscal surplus stable.

Of increasing concern is the declining energy sector, in particular electricity generation, which due to a lack of investment is close to full capacity, and bottlenecks may check future growth.

Investment in general, while high compared to historic levels, is insufficient to keep pace with gross domestic product growth, and too little has been used for increasing capacity. Analysts fear that the output gap is nearly closed.

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