downward trend persists through end of year
Consumer prices rose 0.21% in December, virtually unchanged from the
0.25% registered in November. As a result, the annual inflation rate
dropped from 3.9% in the prior month to 3.7% at the end of the year. The
2003 inflation figure was below the Central Bank forecast of 5.6%.
Despite the strong pick up in economic activity, inflationary pressures
last year were kept at bay principally due to the government’s
imposition of a public utility price freeze but also as a result of a
13.9% nominal appreciation in the currency versus the US$. The
favourable inflationary setting is likely to give the government leeway
to implement a long awaited hike in public utility tariffs this year,
estimated at 15% to 20%. As a result of the utility tariff adjustment,
healthy economic activity and accelerated currency depreciation,
inflation is likely to rise this year. The Central Bank’s monetary
programme that was announced on 18 December expects inflation this year
to be between 7% and 11%. Participants see inflation on the lower end of
the monetary authorities’ estimate at 7.8%, which is 0.3 percentage
points above last month’s figure.
Current account surplus narrows amid strong import growth
In the third quarter, the current account balance registered a surplus
of US$ 1.4 billion. The surplus was well below expectations of US$ 2.4
billion and below the US$ 2.8 billion surplus observed in the third
quarter of 2002. The deterioration over last year’s current account
surplus was almost entirely attributable to the lower surplus in the
trade balance, which dropped from US$ 4.6 billion in the third quarter
of 2002 to US$ 3.9 billion. The strong investment drive prompted a
mushrooming of imports, which were up 62.8% year-on-year, compared to
just 10.8% growth in exports.
The capital account balance incurred a surplus of US$ 106 million. This
third quarter figure represented the first capital account surplus
observed since the second quarter 2001. In the third quarter of 2002,
the capital account balance had registered a US$ 2.6 billion deficit.
Outflows in the banking and non-financial private sector, were offset
principally by the one-time inflow of US$ 1.8 billion in funds from the
International Monetary Fund (IMF). The third quarter surplus raised the
annual current account surplus to US$ 8.9 billion. Consensus Forecast
participants expect the current account to have remained in a surplus
through the end of the year and anticipate the annual surplus to have
narrowed moderately to US$ 8.8 billion. Next year, the further narrowing
in the trade surplus is likely to prompt a lowering of the current
account surplus, which is seen at US$ 7.8 billion by year-end.