GDP growth in annual terms accelerated to a multi-year high in Q4 2017. The expansion came in above market estimates and underscores a domestic economy that is showing signs of recovery, with declining unemployment and robust industrial production. More recent data is positive, suggesting
the growth momentum carried over into the first quarter of this year. Economic activity accelerated markedly in January, and industrial output surged in February. However, this positive data contrasts with figures from the external and monetary sectors. The trade balance recorded its fourteenth consecutive month of deficit in February, and a devastating drought in parts of the country throughout Argentina’s summer months will hit export-oriented industries. Inflation in Q1 furthermore remained
untamed, implying that the external debt burden will continue to grow in the coming months to keep up with elevated public spending.
The economy is expected to grow at a solid pace this year and next thanks to a sharp expansion in fixed investment and still-strong private consumption. However, a weaker currency and high inflation will weigh on private consumption growth. FocusEconomics panelists see the economy
expanding 2.6% in 2018, which is down 0.2 percentage points from last month’s forecast. For 2019, growth is expected to reach 3.2%.
National inflation came in at 25.4% in March (February: 25.4%). Inflation is expected to increase in the upcoming months before declining in the second half of 2018 as subsidies for public transportation and gas are cut in the second quarter. Panelists expect national inflation as measured by
INDEC to end 2018 at 20.6%, which is up 0.9 percentage points from last month’s forecast. For 2019, inflation is set to moderate to 14.5%.
REAL SECTOR | 2018 economic outlook remains uncertain despite strong growth in Q4
According to the Statistical Institute (Instituto Nacional de Estadísticas y Censos, INDEC), economic activity in Q4 edged up from a revised 3.8% annual increase (previously reported: +4.2% year-on-year) in Q3 to 3.9%.
The print marked the fourth consecutive quarter of growth and the fastest rise since Q2 2015. The fourth-quarter print also surprised market analysts, who had expected a softer 3.6% increase. The acceleration was driven by the domestic economy, which continues to strengthen as pro-market reforms bear fruit. On a quarter-on-quarter basis, economic growth accelerated from 0.8%
in the third quarter to 1.0% in the fourth quarter. Q4’s print marked the sixth consecutive quarter-on-quarter rise. The domestic economy was the main engine of growth in the fourth quarter.
The increase in private consumption quickened from a 4.2% expansion in Q3 to 4.8% in Q4, supported by declining unemployment (Q4: 7.2%; Q3: 8.3%) and improving consumer confidence. Fixed investment surged from a 13.0% rise to 20.7% in the fourth quarter on the back of double-digit increases in construction, machinery and equipment, and transportation equipment. The strong expansion in these components attests to the recovery in industrial production, which in 2017 grew at the fastest pace since 2011. Government consumption growth, on the other hand, decelerated from a 1.8% increase in the third quarter to 1.4% in the fourth quarter as it reined in public spending.
The external sector had an abysmal performance in the fourth quarter, as imports surged and exports barely grew. Growth in imports accelerated from a sharp 18.3% rise in Q3 to 21.7% in Q4, while exports grew a paltry 0.4% (Q3: +2.6% year-on-year). The surge in imports reflects in large part stronger for consumer goods as private consumption strengthens, and demand for intermediate goods from industry. Similarly, restrictive monetary conditions by the Central Bank have converted Argentine assets and equities into soughtafter investments, which has contributed in pushing imports higher. Exports, on the other hand, remain weak, reflecting an overvalued currency, existing
trade barriers, and sluggish growth in export-oriented sectors. The Q4 reading pushed full-year GDP growth to 2.9%, the fastest expansion since 2011. Despite the notable improvement, the mood concerning the economy is somber. The latest data shows that inflation remains stubbornly
high, and the external sector continues to be a weak spot. In addition, the removal of subsidies in public utilities in Q1 and a depreciation of the currency after the Central Bank eased inflation targets in late December will weigh on private consumption this year. A devastating drought in the country’s
agricultural region in the first quarter will furthermore hit the agricultural and external sectors.
More troublingly, Argentina’s macroeconomic stability in the medium-term is becoming more uncertain as economic imbalances build. The current account balance is widening, as the country is running a persistent trade deficit and the government keeps borrowing from international lenders to finance fiscal spending. Similarly, restrictive monetary conditions by the Central Bank have
converted Argentine assets and equities into sought-after investments, which has contributed in pushing imports higher. The fiscal deficit remains extremely elevated, despite ongoing efforts to keep spending in check. Prospects of growing current account and fiscal deficits are worrying, as they could derail President Macri’s efforts to reform the economy.
Our panelists expect the economy to grow 2.6% in 2018, which is down 0.2 percentage points from last month’s forecast. For 2019, panelists expect the economy to expand 3.2%.
REAL SECTOR | Economic activity jumps in January The monthly indicator for economic activity (EMAE, Estimador Mensual de Actividad Económica) picked up in January. Economic activity accelerated from a 3.0% year-on-year expansion in December to 4.1% in January. This
marked the eleventh consecutive month of economic expansion in Argentina. January’s acceleration reflected faster growth in almost all components of the index. Most notably, year-on-year growth in construction quickened from 11.7% in December to 14.3% in January. Meanwhile, wholesale and retail sales expanded 5.5% (December: 3.7%) and financial intermediation grew
4.9% (December: 4.0%). A seasonally-adjusted month-on-month comparison showed that economic activity inched up from a revised 0.5% increase in December (previously reported: +0.6% month-on-month) to 0.6% in January. Lastly, average economic activity edged up from 2.8% in December to 3.0% in January.
REAL SECTOR | Industrial output expands sharply in February In February, industrial production expanded 5.3% over the same month last year, according to data released by the National Statistical Institute (INDEC) on 29 March. The reading marked a sharp acceleration from the 2.6% yearon-
year growth observed in January, but was the tenth consecutive month of expansions in industrial output. February’s upturn in industrial production reflected a rebound in the automotiv industry and strong growth in production of non-metallic mineral products and in the basic metallic industry. The automotive industry rebounded from a 6.4% annual contraction in January to a sharp 61.3% increase in February.
Production of non-metallic mineral products grew 12.5% (January: +14.8% year-on-year) and the basic metallic industry expanded 29.8% (January: +14.6% year-on-year). The food industry swung from a 0.7% contraction in January to a 2.5% expansion in February.
The increase in industrial production in February suggests that the recovery of Argentina’s industrial sector is picking up steam and production is set to expand at a solid pace in 2018.
Panelists participating in the LatinFocus Consensus Forecast expect that industrial production will expand 2.6% in 2018, which is up 0.2 percentage points from last month’s forecast. For 2019, the panel expects industrial output to rise to 2.9%.
OUTLOOK | Consumer sentiment steady in March The Universidad Torcuato di Tella (UTDT) consumer confidence index came in at 43.8 points in March, matching the print observed in February. The index is currently below the 50-point threshold that separates pessimistic
from optimistic sentiment among consumers, where it has been almost uninterruptedly since January 2016.
March’s reading reflected consumers’ mixed views on the economy. While their outlook on their personal financial situations and the macroeconomic situation improved over the previous month, their willingness to purchase durable goods and big-ticket household items (appliances, cars and houses) declined in month-on-month terms. Similarly, their assessment of present
economic conditions deteriorated in March.
Panelists surveyed for the LatinFocus Consensus Forecast see private consumption rising 2.8% in 2018, which is unchanged from last month’s forecast. For 2019, panelists expect private consumption to increase 3.2%.
MONETARY SECTOR | National inflation steady in March, while Buenos Aires inflation dips
According to the National Statistics Institute (INDEC), national consumer prices rose 2.3% over the previous month in March, slightly below February’s 2.4% month-on-month increase. The result reflected higher prices in all 12 components of the index. In month-on-month terms, prices for education rose 13.8%, equipment and maintenance of the household 4.5%, and clothing and footwear 4.4%. The annual variation in consumer prices reached 25.4% in March, unchanged from February’s print. National inflation as measured by INDEC is expected to be 20.6% at the end of the year 2018, which is up 0.9 percentage points from last month’s forecast.
Inflation is expected to reach 14.5% at the end of 2019.
Data compiled by the Statistical Institute of the city of Buenos Aires showed that consumer prices in the city of Buenos Aires dipped from a 2.6% monthon-month increase in February to 2.1% in March. Inflation edged down from 26.3% in February to 25.4% in March.
The inflation data released by the Statistical Institute of the city of Buenos Aires and INDEC are not comparable, as the two index structures are not homologous. This is due to different baskets of goods, samples and data collection methodologies.
Panelists surveyed for this month’s LatinFocus report expect inflation in the city of Buenos Aires to be 20.3% at the end of 2018, which is up 0.6 percentage points from last month’s estimate. Panelists estimate that inflation will end 2019 at 14.0%.
EXTERNAL SECTOR | Trade deficit narrows marginally in February In February, exports expanded 10.1% year-on-year, a slight deceleration from January’s revised 11.1% increase (previously reported: +10.7% year-on-year). Increases were recorded in exports of three of the four main categories of the
index. In annual terms, exports of primary products expanded 13.8%, while export of fuels and energy surged 83.6%. In contrast, manufactured goods of agricultural origin was the only component that contracted in February (-0.4% yoy).
Growth in imports moderated from a 32.1% increase in January to a stillstrong 26.3% expansion in February. The increase was driven by doubledigit expansions in all but one component of the index. In annual terms, intermediate goods rose 35.4%, fuel and lubricants 30.8%, and consumer
goods 23.3%. The slowdown most notably reflected a deceleration in imports of capital goods, from 29.5% to 7.3%.
The trade deficit narrowed marginally, from USD 969 million in the previous month to USD 903 million in February (February 2017: USD 217.0 million deficit). The reading marked the fourteenth consecutive month that the trade balance was in the red. The widening trade deficit is becoming a major source of concern because it will contribute to a higher current account deficit, at
a moment when the government is borrowing heavily from foreign sources to keep up with elevated public spending. Whereas current borrowing levels are considered to be on a sustainable level, this could change quickly as the U.S. Federal Reserve continues to tighten monetary policy and inflation fails to slow, which will force the government to keep borrowing from international sources.
Panelists participating in the LatinFocus Consensus Forecast expect exports to expand 6.3% in 2018 and imports to increase 9.8%, pushing the trade balance to a USD 11.3 billion deficit. For 2019, the panel expects exports to increase 7.0% and imports to also expand 7.0%, with a trade shortfall of USD 12.1 billionFUENTE: Por Focus Economicos - https://www.focus-economics.com/ - Barcelona - España.