Nader Nazmi - Market Economics
Latam Macro Snapshot | 18 Mar 2013 17:17 |
Data releases today confirm that domestic demand strength underpinned a rapid rise in real output and widened the current account deficit in Q4. Recent data indicate that early in Q1 domestic demand continued to grow at a pace that likely exceeded the economy’s potential, increasing the risk of overheating.
Growth was rapid in Q4 and in 2012.
Powered by domestic demand, the economy grew 5.7% y/y in 4Q and expanded 5.6% in 2012, in line with our and the consensus estimates (Chart 1). In sequential terms, real GDP expanded 1.5% q/q (sa), following a 1.2% q/q (sa) advance in Q3.
Private consumption and investment rose by 7.3% y/y and 18.1% y/y, respectively. Investment spending was particularly strong in machinery and equipment (+31.3% y/y), underscoring strong business confidence and boding well for future growth prospects. Reflecting buoyant domestic demand, imports surged 11.9% y/y, far outpacing a 4.7% y/y rise in exports.
The current account deficit increased substantially in 2012.
A USD 4.0bn pick up in exports in Q4 to USD 21.3bn on the back of firmer copper prices, helped turn the trade balance to a surplus of USD 0.9bn in Q4 from a deficit of USD 1.8bn in Q3. This contributed to a narrowing of the current account deficit to USD 2.9bn in Q4. Despite a better Q4 performance, the current account deficit widened to USD 9.5bn or 3.5% of GDP in 2012 from a deficit of 1.4% of GDP in 2011 (Table next page).
Net FDI flows more than doubled to USD 5.2bn in Q4 and reached USD 9.2bn in full-year 2012, nearly sufficient to cover the current account deficit. At USD 9.9bn, the 2012 surplus in the financial account of the balance of payments was some USD 8bn smaller in 2012 than it was in 2011, largely due to changes in portfolio investment flows.
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