Economics: An Insufficiently Austere Budget
The Ministry of Finance handed Congress its 2016 budget proposals on Tuesday, September 8. The budget package includes both the revenue and spending bills along with the document containing the general economic assumptions that underpin the budget proposals. The various components of the 2016 package (the anticipated macroeconomic context, the combination of revenue and spending plans and the deficit and debt levels they would entail) pose substantial challenges for the coming year.
Most of the official assumptions regarding the international macroeconomic context for 2016 that the government cited in justifying its budget proposals revolve around a volatile external environment, with growth levels remaining low and international interest rates moving higher.
On the internal front the authorities estimate GDP growth will range between 2.6% and 3.6% next year, a projection we regard as excessively optimistic considering the lack of growth expected for the final months of 2015 and the extent to which there has been an erosion of confidence among both domestic and international investors.
When projecting next year’s public income and spending balance, the government estimates a 0.2% real term decrease in budgetary revenues compared to the projected close for 2015, as a result of a 30% erosion of the country’s oil income. It also projects a real 1.9% reduction in programmable public sector spending alongside a primary balance deficit equal to -0.5% of GDP. In any event, the public revenue shortfall will by no means be confined to 2016. It is the new reality that will have to be addressed year after year, at least through the next half decade.
In this week’s “Economic Outlook”, we analyze in detail the government’s budget proposals.
In other economic news, last week the authorities reported that industrial output grew only 0.7% above levels of a year earlier in July, just a third of the 2.1% increase reported for July 2014. The greatly diminished rate of growth mainly reflected the extent to which the roughly year and a half-long contraction in extractive industries continued unabated, as well as a loss of momentum in the manufacturing sector.Mining and drilling output plummeted 5.3% after having fallen 1.9% a year earlier, and has now contracted an average 6.4% through the first seven months of the year.
Manufacturing output expanded a mere 1.3% in July, a result well below the average 3.1% increase recorded through the first six months of the year, a period in which growth sometimes surpassed the 4.0% mark, including June’s 4.2% expansion.
In contrast to the disappointing industrial results and a report showing that the 12-month rate of consumer inflation rose 2.59% in August – its lowest level since the authorities began releasing inflation results every month in January 1970 – store sales continued to point to a strong internal market.
The National Association of Supermarkets and Department Stores (Antad) said affiliated retailers’ sales at comparable stores – those open at least one year – grew by a real 5.1% in August compared to the same month a year earlier. Sales at all stores, including newer locations, were a real 8.7% higher compared to those recorded for the same month a year earlier.
Consumer expectations that they will see their disposable income continue to grow are among the main factors that Antad predicts will serve as sales drivers this year.
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