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Booming beyond expectation for over a year, Argentina's economic recovery is losing steam with falling farm prices, a credit squeeze and economic and political jitters.
The economy grew 8.7 percent last year after the 70 percent devaluation of the peso in the 2002 crash boosted exports, heralded a swing to import substitution and swelled consumer spending. It was the first year of growth after a four-year recession that shrank the economy by 20 percent.
But analysts polled weekly by the central bank forecast that gross domestic product growth will slip to 7.3 percent this year and slow further to 4.7 percent in 2005.
There are already signs that dynamism in Latin America's No 3 economy is tailing off. Exports, for example, were up only 1 percent in May over May 2003 while imports jumped 77 percent over the same period.
International prices of soy - Argentina's star export crop that accounted for a large chunk of last year's economic growth - have slumped 30 percent since March. Wheat and corn, also major exports, have fallen in price as well.
"There is still very important momentum from the very rapid growth of last year and the very beginning of this year," said Fernando Losada, senior Latin American economist at ABN Amro in New York.
"But if you look at the month-on-month figures, they are already showing that we are no longer in the gangbusters' mode that we were in a few months ago. Going forward the outlook looks a little bit more difficult than what it was," he added.
The government's difficulty in reaching accords with private creditors over $100 billion in defaulted sovereign debt and problems with an IMF aid package have hit investor confidence, causing the peso to hit a 17-month low this month.
Growth rates in Argentine are keenly watched because they give a sign of how much the government can afford to repay in debts. Stronger growth rates would also help reduce Argentina's high post-crisis unemployment and poverty levels - key to stability for President Nestor Kirchner's government.
But more and more economic data show strains in the economy. The gross domestic product expanded 4.8 percent in May - the latest data available - and way below analysts expectations of around 7.6 percent.
Consumer confidence, according to a widely followed index from Torcuato Di Tella University, has fallen to its lowest level in over a year. Consumer spending accounted for around two-thirds of Argentina's GDP in the first quarter.
"We are not talking about the stagnation of the economy," said Vanesa Broda, economist at M.A. Broda y Asociados consultancy. "But in the second half of the year there will be weaker growth figures than in 2003 and the first quarter of 2004."
"In the second half of the year we forecast a rise in consumer spending by 6 percent, less than the 10 percent of the first half," said Broda.
Kirchner and Economy Minister Roberto Lavagna have attacked economists who they say are unnecessarily pessimistic.
"They announced apocalyptic forecasts, the approaching of the coming storm. What storm? We Argentina are going to lift up this nation with all our efforts," Kirchner said recently.

Copyright Reuters, 2004

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