RETAIL ACTIVITY ON THE RISE IN NICARAGUA.

For once, Nicaraguan consumers are benefiting from the fact that they are rather isolated from the global economic mainstream. Sheltered from the decline in global economic activity, Nicaragua's private sector consumption experienced a strong upturn in 2001 and additional gains are expected in 2002.

Data recently release by the Central Bank of Nicaragua reveals that there was a nationwide rebound in retail activity starting in the second half of 2001. The rise in retail sales should continue through 2002 as consumer confidence firms and there is a gradual increase in purchasing power, at least in the capital (Managua) and its environs.

A report recently published by La Noticia Digital contained the results of a survey of retailers who project that retail sales would be up 30 percent (year-on-year) during December 2001 in response to strong holiday spending. The survey predicts that retail activity will remain firm through the first half of 2002, outpacing the level of sales experienced during the second half of 2001.

The report quotes Marcos Mayorga, president of the Chamber of Commerce of Nicaragua, as saying, "We expect retail sales growth of US$30 million during December 2001, with respect to the same period a year earlier, thanks to the reactivation of the national economy."

In December of 2000, retail sales totaled US$100 million, but the prevailing national economic climate has improved considerably since then. According to Mayorga, "We are aware that retail activity has bounced back in Nicaragua because representatives of several sectors already informed us that the nation's economy is improving."

Generally speaking, business leaders favor improved transportation links with the United States under the "Open Skies" plan promoted by United States aviation authorities. Under that plan, the national airline, TACA, will serve the Miami travel market. Increased frequency of flights under the program will likely benefit both national and foreign airlines in the medium to long term. Improved air links should also facilitate trade links between the two nations by increasing options for the transportation of delicate agricultural products that must reach the final consumer quickly.

A report recently released by the Central Bank of Nicaragua reveals that GDP expansion gained momentum during the first half of 2001, reaching year-on-year gains of 3.5 percent by midyear. Strong performance in the retail sector and an improvement in export sales should further accelerate economic expansion as of the second quarter of 2002. According to the Monthly Index of Economic Activity (IMAE), recent economic expansion was primarily driven by strong performance in the energy, finance, industry, livestock, and potable water sectors.

Dynamic growth of the cattle industry is the driving force behind recent gains in the productive sector. Midyear production gains were almost 15 percent above those experienced the previous year. Increasing affluence in rural areas is adding some balance to Nicaragua's wealth distribution, which has traditionally been skewed heavily by affluent residents of the capital.

Improved earnings in the livestock industry trickled down in the form of a modest increase in private sector consumption. Substantial gains are anticipated in sales of products and services associated with livestock production and processing.

Several sectors proved to be a drag on economic expansion during 2001. These include fishing, construction, and mining, which experienced a gradual decline in activity during the latter half of the year. According to the IMAE, year-on-year growth in employment stood at 1% in mid-2001. This gain was achieved in spite of moderate job losses in the construction, finance, mining, and transportation sectors.

A recent central bank report says, "The manufacturing sector continued to grow, but at a rate of 1.88 percent, much lower than the 26.1 percent growth rate registered a year earlier. Nevertheless, we see evidence that the electricity, gas, and water sectors experienced vigorous growth, reaching 25.46 percent (in mid-2001), compared with a 6.52 percent increase the previous year."

Purchasing power is on the rise and this will be reflected in a gradual increase in household expenditures during 2002. According to the central bank, the rate of year-on-year variation in nominal wages was up 7.1 percent at midyear 2001. In spite of the solid gains during 2001, the rate of wage increases was less than that experienced a year earlier. In the agriculture, electricity, gas, hotel, restaurant, retail, and water processing sectors, wage increases were down modestly from 2000 levels. Greater deceleration was noted in the construction, mining, and manufacturing sectors as well. By contrast, the rate of wage increases in the financial and insurance sectors rose from 5.12 percent in mid-2000 to 7.86 percent a year later.

Substantial recent gains in purchasing power are attributable to the fact that wage increases outpaced increases in consumer prices and overall inflation. According to the central bank, "Consumer prices in Managua and in the rest of the country for September of 2001 showed a monthly variation of 0.05 percent, and accumulated inflation of 4.12 percent." Consumer prices are likely to remain relatively stable, at least through the first half of 2002. That will lead to another modest gain in purchasing power by the end of the year.

Inflation appears to be well under control in Nicaragua. The level of open unemployment should decline a bit further during 2002, but that won't overcome the lingering problem of informal employment, which robs households of the financial stability needed to purchase more than the basic necessities of life.