Análisis económico de Argentina. Por Focus Economics

The economy appears to have remained stuck in recession in the fourth quarter. This follows a second consecutive GDP contraction in the third quarter, which was triggered by plunging domestic demand on the back of sky-high inflation and interest rates, and a sharp fall of the peso. The decline in economic activity intensified in November, due to faster contractions in most economic sectors, and industrial production shrunk markedly throughout Q4. Turning to the first quarter of this year, January’s drop in consumer confidence points to protracted weakness in spending. At the same time, macroeconomic adjustments continue. The trade balance recorded a fourth consecutive surplus in December thanks to surging exports and plunging imports. Moreover, recently released data shows that the country outperformed its 2.7% primary-deficit-to-GDP ratio which had been outlined as a target by the IMF in 2018, while it also reduced its fiscal deficit from 6.0% of GDP in 2017 to 5.2% of GDP.  The economy should gradually begin to recover this year. A slow but steady moderation in both inflation and interest rates should support consumer spending and fixed investment, which will nevertheless suffer from still-tight financing conditions and higher taxes. Growing agricultural production will boost exports and limit the scope of the contraction. Political uncertainty ahead of October’s elections continue to cloud the outlook. LatinFocus Consensus Forecast analysts see the economy contracting 1.0% in 2019, down 0.1 percentage points from last month’s estimate, and expanding 2.5% in 2020.  Inflation moderated to 47.6% in December (November: 48.5%), thanks to pass-through effects from a stronger peso. Inflation should decline this year, on the back of tight monetary conditions and despite the scheduled increase in utility tariffs which will fuel inflationary pressures. Analysts expect inflation to end 2019 at 28.8% and 2020 at 20.2%.  In October, the Central Bank (BCRA) moved to a monetary rule which sets a 0% monthly growth for the monetary base until June 2019. The Bank met the monetary base target again in January. The BCRA is expected to keep tight albeit softening monetary conditions this year. The panel sees the LELIQ rate ending 2019 at 36.57% and 2020 at 25.50%.  On 8 February, the ARS traded at 37.88 per USD, weakening 1.0% from the same day in January. The strict enforcement of the rigid monetary policy rule and some weakness in the USD following the Fed’s easing stance partially offset downward pressures from still-rampant inflation and repeated USD purchases by the BCRA. The peso should depreciate this year due to inflationary pressures and analysts see the ARS at 47.53 per USD and 54.78 per USD in 2019 and 2020, respectively REAL SECTOR | Economic activity contracts at sharpest pace in close to 10 years in November The monthly indicator for economic activity (EMAE, Estimador Mensual de Actividad Económica) contracted 7.5% in annual terms in November, a sharper drop than the revised 4.2% fall recorded in October (previously reported: -4.0% year-on-year). The reading marked the eighth consecutive month of decline in year-on-year terms. November’s fall came on the back of broad-based contractions in the economic sectors. The most significant falls were recorded in the manufacturing, wholesale and retail sales, and construction sectors. Moreover, the performances of the sectors were more negative than seen in the previous month. A month-on-month comparison showed that economic activity shrunk 2.3% in seasonally-adjusted terms in November, swinging from October’s revised 0.6% uptick (previously reported: +0.9% month-on-month). Finally, the annual average variation in economic activity was equal to a 1.7% contraction in November, following a 0.7% drop in October. LatinFocus Consensus Forecast analysts see the economy in recession this year, contracting 1.0%, down 0.1 percentage points from the previous month’s forecast. Analysts see the economy rebounding in 2020, and growing 2.5%. REAL SECTOR | Contraction in industrial production sharpens further in December Industrial production plunged a multi-year low of 14.7% over the same month of last year in December, according to data released by the National Statistical Institute (INDEC) on 5 February, marking a steeper fall than November’s 13.9% year-on-year decline. December’s result reflected contractions in all components of the index. The categories of textile; machinery and equipment; other equipment, instruments and apparatus; and other transport equipment recorded the biggest drops. The decline in production of other transport equipment was especially sharp. A marked fall in domestic demand was again behind the contraction in industrial output. On 5 February, the Statistical Institute revised its methodology of calculating industrial production. The new methodology, among other innovations, includes results from previously unrecorded sectors. Panelists participating in the LatinFocus Consensus Forecast expect that industrial production will contract 1.9% in 2019, which is down 0.2 percentage points from last month’s forecast. For 2020, the panel expects industrial output to rise 2.5%. OUTLOOK | Consumer sentiment declines at the beginning of the year The Universidad Torcuato di Tella (UTDT) consumer confidence index dropped to 33.1 points in January from 36.0 points in December—which had marked the best reading in four months. Consequently, the index moved further below the 50-point threshold that separates pessimism from optimism among consumers, where it has been for over a year. January’s print reflected a deterioration in two out of the three subcomponents of the index: Consumers’ assessments of their personal finances deteriorated notably, as did consumers’ assessments of the broader shortterm macroeconomic environment. On the other hand, their willingness to purchase big-ticket household items improved. Panelists surveyed for the LatinFocus Consensus Forecast see private consumption dropping 2.5% in 2019, which is unchanged from last month’s forecast. For 2020, panelists expect private consumption to increase 2.5%. MONETARY SECTOR | Inflation ticks down as peso stabilizes According to the National Statistical Institute (INDEC), national consumer prices rose 2.6% over the previous month in December, coming in below November’s 3.2% month-on-month increase. December’s reading represented the third consecutive month of decelerating month-on-month price increases. It reflected pass-through effects from a stabilizing peso, which again translated into a broad-based slowing in monthon-month price growth in the 12 components of the index in December. The strongest price increases were recorded for communication—due to mobile phone tariff increases—and healthcare. Meanwhile, inflation moderated from November’s multi-year high of 48.5% to 47.6% in December. Inflation is expected to be 28.8% at the end of 2019, which is down 0.2 percentage points from last month’s forecast. Inflation is projected to fall to 20.2% at the end of 2020. EXTERNAL SECTOR | Trade surplus widens further in December on falling imports and surging exports Exports leaped 15.4% in year-on-year terms in December, following November’s 14.6% increase. December’s jump reflected a strong rise in exports of manufactured products of agricultural origin and of primary products, as well as healthy expansions in foreign sales and of exports of manufactured products of industrial origin. In terms of export markets, solid export growth towards Mercosur (especially Brazil) and the Middle East, coupled with a surge in exports towards China, were only partially dampened by declining exports towards ASEAN and the European Union. Imports plummeted 27.1% annually in December, a somewhat softer fall than November’s 29.2% contraction. A plunge in imports of capital and consumption goods, as well of imports of passenger motor vehicles, just partially compensated by sturdier imports of intermediate goods, explain December’s contraction. Meanwhile, the trade balance surplus widened from a USD 1.0 billion surplus in November to a USD 1.4 billion surplus in December, the fourth consecutive surplus after 20 months in the red and the best reading since May 2014 (December 2017: USD 1.5 billion deficit). The 12-month rolling trade deficit came in at USD 3.8 billion (December 2017: USD 8.3 billion shortfall), narrowing from November’s USD 6.0 billion deficit and marking the best result in almost one-and-a-half years. Panelists participating in the LatinFocus Consensus Forecast expect exports to expand 11.7% in 2019 and imports to decrease 6.4%, pushing the trade balance to a USD 7.5 billion surplus. For 2020, the panel expects exports to increase 6.2% and imports to grow 7.7%, with a trade surplus of USD 7.1 billion

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