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Argentina’s 9-Year GDP Growth Probably Slowed in Second Quarter

Argentina’s nine-year economic expansion probably slowed in the second quarter as sales of manufactured goods to Brazil began to taper and domestic demand moderated in South America’s second-biggest economy.

Gross domestic product rose 7.8 percent from the year earlier, according to the median estimate of nine economists surveyed by Bloomberg. The national statistics institute will publish its report at 3 p.m. New York time. The economy grew 9.2 percent in 2010.

“There was a slowdown in industrial output because of lower demand from Brazil but also lower demand from domestic consumers,” said Juan Pablo Fuentes, a Latin America economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “It’s difficult to maintain growth of almost 10 percent.”

President Cristina Fernandez de Kirchner, who polls show is headed toward re-election next month, will probably trim spending growth to tame inflation economists estimate is more than 20 percent, said Alberto Ramos, a senior Latin America economist at Goldman Sachs Group Inc. in New York. The European debt crisis and slower growth in Brazil, Argentina’s main trade partner, will also moderate the expansion, Fuentes said.

“The government will probably have to take more measures than it has done over the last 2 years to control inflation,” said Ramos in a telephone interview. “It’s likely that wage increases will be less generous than the last two years.”

Salary Increases

With Fernandez’s support, unions and business leaders last month agreed to raise the minimum wage 25 percent to 2,300 pesos ($550) per month. The government says consumer prices rose at an annual rate of 9.8 percent in August.

Government outlays leaped 39 percent in July from a year earlier, helping Fernandez boost spending on social programs and public works projects. This month she announced a 23 percent increase in payments to poor families who keep their children in school, a program that will cost the state about 11.8 billion pesos this year.

Brazil, which buys about 20 percent of Argentina’s exports, will cut its GDP growth forecast for this year to under 4 percent, said central bank President Alexandre Tombini in an interview with GloboNews Television on Sept. 8. In the second quarter, Latin America’s biggest economy expanded 3.1 percent from a year earlier, the slowest pace in two years.

The auto industry, which has led Argentina’s manufacturing growth and sends most of its production to Brazil, boosted output 18 percent in August from a year earlier. Output rose 53 percent in August last year.

Factory Output

Argentina’s industrial output climbed at an average annual rate of 8.5 percent per month in the second quarter, down from an average of 10.1 percent in the same period last year. Growth of sales of goods including home appliances, toys and clothing fell to an average 17.2 percent per month this year from an average of 33.7 percent per month last year, according to the national statistics agency.

The economy will grow 7.7 percent in 2011, it’s ninth straight annual expansion since a financial crisis in 2001-2002, according to the median estimate of five economists surveyed by Bloomberg.

While investment in the economy is nearing 24 percent of GDP, that rate isn’t enough to sustain 7 percent or 8 percent annual economic expansion, Ramos said.

Foreign direct investment in Argentina rose 54 percent last year to $6.2 billion, according to the Santiago-based United Nations Economic Commission for Latin America. That compares with investment of $48.5 billion in Brazil, $15.1 billion in Chile, $7.3 billion in Peru and $6.8 billion in Colombia.

Investment has been hindered by Fernandez’s policies, Ramos said. Since taking office in 2007, Fernandez has retained most price caps on utility rates, moved to limit foreign ownership of rural land and tried to raise taxes on agricultural exports.

“We need more investment to sustain a growth rate of 7 or 8 percent,” Ramos said. “For that you need policies that are more friendly to the private sector.”

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