As I said, the performance of the economy in the third quarter was similar to that of previous quarters, so it continued to grow between 2 and 2.5 percent annually. This result revealed a deeper than expected decline of natural resources, particularly mining, due to production downtime associated to the fall in the copper price. The performance of the other sectors was somewhat better, namely construction and some services. As for domestic demand, it is still growing weakly, although a little more than we foresaw in September. The increase in gross fixed capital formation, where specific factors combine, such as high imports of transport equipment, and stronger residential housing construction, is worth noting. Private consumption kept a growth rate of around 2 percent annually (figure 3). The performance of domestic demand reflects that business and consumer confidence indicators remain pessimistic, despite the resilience of the labor market and that GDP growth, while slow, has stabilized. The cost of domestic funding is still low by historical standards, partly reflecting the expansionary stance of monetary policy. Nonetheless, with the sole exception of mortgage loans, credit growth in real annual terms is still limited (figure 4). The baseline scenario assumes that GDP will grow between 2 and 3 percent in 2016, a lower range than forecast in September. This projection continues to estimate that the economy’s potential growth (i.e., the non-accelerating-inflation growth rate) lies around 3 percent. Accordingly, we believe that output gaps will exhibit limited growth in 2016 and will begin narrowing towards 2017.
However, both our baseline scenario and the market’s projections expect it to rise again above 4 percent and to stay in the neighborhood for the larger part of 2016. Our currency’s depreciation has been a significant factor behind the increase in inflation, reflected mainly in the CPIEFE inflation for goods which, after averaging –1.9 percent in 2013, has been somewhat below 5 percent since July this year. Add to this the indirect effect on other prices via indexation to past inflation. Aside from the sustained depreciation of the peso, the persistence of high inflation is also related, as was stressed in September, with the fact that output gaps, despite some increase, are of a smaller magnitude than they have been in other low-growth cycles, making it difficult for non-tradable goods inflation to make a bigger adjustment (figure 1). The evolution of output gaps is most evident in the labor market, where the unemployment rate remains low and annual growth of total employment hovers around 2 percent, with salaried employment showing faster growth at the margin. While nominal wages have had a gradual moderation since late 2014, they are expanding at about 6 percent annually (figure 2). Meanwhile, fuel prices have dropped and foodstuffs inflation has slowed. The recent adjustment of public sector wages should help to contain wage pressures. Our baseline scenario estimates that GDP will grow by 2.1 percent in 2015, within the range we foresaw in September.