Recent data suggests economic growth cooled in the fourth quarter of 2017. Industrial production barely increased in December after eight consecutive months of expansion, and the index of economic activity lost steam in November. The external sector closed 2017 with the largest
trade deficit on record and will likely cause the current account deficit to swell in Q4. Argentina’s widening current account deficit is becoming increasingly worrying, not only because it drives up the economy’s vulnerability to external shocks, but also because it is putting additional pressure on the Argentine peso and the country’s ballooning external debt obligations. The currency continued to depreciate in January at a moment when subsidies for basic products, such as energy and transportation, were slashed, contributing to stubbornly-high inflation. Despite additional
subsidy cuts in the pipeline, the government’s fiscal spending and need to tap into international debt markets are expected to remain elevated in the foreseeable future.
The economy is set to grow at a faster pace in the next two years on the back of growth in fixed investment and private consumption; private consumption is nevertheless expected to decelerate from 2017’s print in part due to persistent inflation. FocusEconomics panelists see the
economy expanding 3.0% in 2018, which is unchanged from last month’s forecast. For 2019, growth is expected to reach 3.2%.
Inflation in the city of Buenos Aires jumped from 23.6% in November to 26.1% in December. On 23 January, the Bank surprised market analysts by cutting the 7-day repo reference rate 75 basis points to 27.25%. Panelists expect inflation for the whole country to end 2018 at 19.3%. For
2019, inflation is set to moderate to 13.5%.
REAL SECTOR | Economic activity loses steam in November In November, the monthly indicator for economic activity (EMAE, Estimador Mensual de Actividad Económica) lost steam. Growth in economic activity moderated from October’s revised 4.9% increase (previously reported: +5.2%
year-on-year) to a 3.9% expansion in November. November’s print marked the ninth consecutive month of growth.
November’s reading reflected a slowdown in almost all components of the index. Year-on-year growth in construction activity decelerated from 18.4% in October to 16.6% in November. Financial intermediation expanded 7.8%, coming in slightly below October’s 8.2% rise. Farming, cattle raising, hunting and forestry expanded a soft 1.3% in November, a notable slowdown from
5.1% in October.
A seasonally-adjusted month-on-month comparison showed that economic activity inched up from a 0.3% increase in October to 0.4% growth in November. Lastly, economic activity in the 12 months up to November jumped to 2.6% on average, up from 2.2% in the 12 months up to October.
Our panelists expect the economy to grow 3.0% in 2018, which is unchanged from last month’s forecast. For 2019, panelists expect the economy to expand 3.2%.
REAL SECTOR | Growth in industrial output slows significantly in December
In December, industrial production expanded 0.3% over the same month in the previous year, according to the latest data released by the National Statistical Institute (INDEC). The reading marked a steep deceleration from the 3.5% year-on-year growth observed in November. December’s print marked the slowest expansion in seven months, since output swung from contraction to
expansion in May, putting an end to fifteen consecutive months of contraction. The monthly reading reflected a steep decline in the output of food and automotive industries, which almost offset an expansion in nearly all other components of the index. The all-important food industry contracted 7.3% in annual terms in December and contracted 1.4% in the year as a whole. Output
in the automotive industry declined 12.7% in year-on-year terms in December, dragged down by lower car production. On the flip side, basic metallurgic industries expanded 17.0%, and non-metallic mineral products rose 10.2% year-on-year in December.
The accumulated average annual variation in industrial production over the January–December period was 1.8%, edging down from the 1.9% reading observed in the January–November period.
Panelists participating in the LatinFocus Consensus Forecast expect that industrial production will expand 2.7% in 2018, which is unchanged from last month’s forecast. For 2019, the panel expects industrial output to rise to 3.0%. OUTLOOK | Consumer sentiment recovers marginally in January
following a steep drop in December
The Universidad Torcuato di Tella (UTDT) consumer confidence index rose from 43.2 points in December to 45.2 points in January. Despite the increase, the index remains below the 50-point threshold that separates pessimistic from optimistic sentiment.
The improvement in consumer confidence reflected a broad-based month-onmonth improvement in the three main components of the index. Willingness to purchase durable goods and real estate recorded the most significant improvement in January and was followed by views on the macroeconomic outlook. Assessment of personal situations was the subcomponent that recorded the smallest improvement.
Panelists surveyed for the LatinFocus Consensus Forecast see private consumption rising 2.9% in 2018, which is down 0.2 percentage points from last month’s forecast. For 2019, panelists expect private consumption to increase 3.1%. MONETARY SECTOR | Central Bank misses inflation target in 2017
According to the National Statistics Institute (INDEC), consumer prices in the greater Buenos Aires capital area rose 3.4% in December compared to the previous month, which was significantly above November’s 1.2% rise. Core November. Lastly, economic activity in the 12 months up to November jumped to 2.6% on average, up from 2.2% in the 12 months up to October.
Our panelists expect the economy to grow 3.0% in 2018, which is unchanged from last month’s forecast. For 2019, panelists expect the economy to expand 3.2%.
REAL SECTOR | Growth in industrial output slows significantly in December
In December, industrial production expanded 0.3% over the same month in the previous year, according to the latest data released by the National Statistical Institute (INDEC). The reading marked a steep deceleration from the 3.5% year-on-year growth observed in November. December’s print marked the slowest expansion in seven months, since output swung from contraction to
expansion in May, putting an end to fifteen consecutive months of contraction.
The monthly reading reflected a steep decline in the output of food and automotive industries, which almost offset an expansion in nearly all other components of the index. The all-important food industry contracted 7.3% in annual terms in December and contracted 1.4% in the year as a whole. Output in the automotive industry declined 12.7% in year-on-year terms in December,
dragged down by lower car production. On the flip side, basic metallurgic industries expanded 17.0%, and non-metallic mineral products rose 10.2% year-on-year in December.
The accumulated average annual variation in industrial production over the January–December period was 1.8%, edging down from the 1.9% reading observed in the January–November period.
Panelists participating in the LatinFocus Consensus Forecast expect that industrial production will expand 2.7% in 2018, which is unchanged from last month’s forecast. For 2019, the panel expects industrial output to rise to 3.0%. OUTLOOK | Consumer sentiment recovers marginally in January
following a steep drop in December
The Universidad Torcuato di Tella (UTDT) consumer confidence index rose from 43.2 points in December to 45.2 points in January. Despite the increase, the index remains below the 50-point threshold that separates pessimistic from optimistic sentiment.
The improvement in consumer confidence reflected a broad-based month-onmonth improvement in the three main components of the index. Willingness to purchase durable goods and real estate recorded the most significant improvement in January and was followed by views on the macroeconomic outlook. Assessment of personal situations was the subcomponent that
recorded the smallest improvement.
Panelists surveyed for the LatinFocus Consensus Forecast see private consumption rising 2.9% in 2018, which is down 0.2 percentage points from last month’s forecast. For 2019, panelists expect private consumption to increase 3.1%.
MONETARY SECTOR | Central Bank misses inflation target in 2017 According to the National Statistics Institute (INDEC), consumer prices in the greater Buenos Aires capital area rose 3.4% in December compared to the previous month, which was significantly above November’s 1.2% rise. Core consumer prices in the Buenos Aires metropolitan region also increased from 1.3% in November to 2.0% in December. Inflation in the greater Buenos Aires capital area jumped to 25.0% in December. Data for the month-on-month variation in consumer prices for the entire
country showed increased 3.1% in December from the previous month, coming in above November’s 1.4% rise. The result reflects in large part a 17.8% increase in prices for households, water, electricity, gas and fuel. Core consumer prices, which exclude volatile and non-regulated products, rose
1.7% month-on-month (November: +1.3% mom). In annual terms, inflation for the entire country reached 24.8% in December, exceeding the Central Bank’s 12.0%–17.0% target for 2017.
Panelists surveyed for this month’s LatinFocus report expect national inflation as measured by INDEC to be 19.3% at the end of 2018. Panelists estimate that inflation will end 2019 at 13.5%.
The latest data compiled by the Statistical Institute of the city of Buenos Aires showed that inflation in the city of Buenos Aires rose from 23.6% in November to 26.1% in December. The inflation data released by the Statistical Institute of the city of Buenos Aires and INDEC are not comparable, as the structures of the two indices are not the same. 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 19.1% at the end of 2018, which is up 0.5
percentage points from last month’s estimate. Panelists estimate that inflation
will end 2019 at 13.8%. The latest data compiled by the Statistical Institute of the city of Buenos Aires showed that inflation in the city of Buenos Aires rose from 23.6% in November to 26.1% in December. The inflation data released by the Statistical Institute of the city of Buenos Aires and INDEC are not comparable, as the structures of the two indices are not the same. 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 19.1% at the end of 2018, which is up 0.5 percentage points from last month’s estimate. Panelists estimate that inflation will end 2019 at 13.8%.
Stubbornly-high inflation is a persistent problem for the government, since it will have to continue accumulating external debt to finance the fiscal deficit in order to meet its objective of trimming elevated public spending. The Central Bank’s decision to ease its inflation target for 2018 and 2019 implies that short- and mid-term estimates of government spending, earnings and the fiscal
deficit are putting at risk the health of public finances and the government’s fiscal consolidation efforts.
MONETARY SECTOR | Central Bank cuts policy rate further in January At its monetary policy meeting held on 23 January, the Central Bank of Argentina (Banco Central de la República Argentina, BCRA) slashed the 7-day repo reference rate by another 75 basis points to 27.25%. The decision surprised market analysts, who had expected the Bank to stand pat following another rate cut, also by 75 basis points, on 9 January.
The Bank was able to cut interest rates for the second time in 2018 after new inflation targets established on 29 December gave them leeway to loosen monetary conditions to spur faster growth. The new inflation target of 15.0% at year-end enables them to adopt a less contractionary monetary stance. It has, however, also raised questions on Bank’s independence and commitment to
containing inflation. The institution nevertheless stated it is taking a careful approach to rate cuts to prevent the peso from depreciating sharply, which could drive up inflation.
The press statement lacked specific forward guidance. It was only mentioned that future rate decisions will be directed towards reaching the Bank’s new inflation target. The next policy decisions will largely depend on upcoming data from the real and monetary sectors.
Participants in the LatinFocus Consensus Forecast see the 7-day Repo Reference rate ending 2018 at an average of 21.53%. Panelists see the 7-day
Repo Reference rate easing further in 2019 and expect it to close the year at an average of 16.56%.
MONETARY SECTOR | Peso slides in January The Argentine peso continued to depreciate in the first month of the year. On 31 January, it closed the day at 19.65 ARS per USD, a steep 5.6% depreciation over the same day of the previous month. As of 31 January, the peso had lost
5.6% of its value year-to-date and was also 23.7% weaker compared to the same day last year.
The currency has been under pressure since the Central Bank eased its inflation target for 2018 and 2019 on 29 December 2017. Since then, the Bank has twice slashed the 7-day repo reference rate by 75 basis points, on 9 January and 23 January; the policy rate now stands at 27.25%. The
rate cuts have induced drops in the yields of peso-denominated bonds and stocks, making peso-denominated instruments less attractive to investors,
and causing the currency to depreciate as a result.
Over the next two years the peso is expected to decline as the Bank’s new inflation target enables it to lower the rate even further. While a weaker peso will most likely fan price pressures and dent disposable incomes, it could boost exports and help reduce the widening current account deficit.
Argentina’s gaping current account deficit reflects the government tapping into international debt markets to meet its financing needs. On 7 February, the government sold USD 4.6 billion in bonds and treasury notes. A widening current account deficit could exacerbate external imbalances, increasing the country’s vulnerability to external shocks.
Panelists surveyed for this month’s LatinFocus report expect the ARS to end 2018 at 21.77 ARS per USD, and it projects the Argentine peso to trade at 24.14 ARS per USD at the end of 2019. EXTERNAL SECTOR | Trade balance records largest accumulated deficit on record In December, exports contracted 2.4% in year-on-year terms, an improvement from the revised 4.2% contraction observed in November (previously reported: -4.9% year-on-year). December’s contraction reflected a double-digit drop in manufacture of agricultural products, which more than offset an expansion in
the three remaining components of the index. In dollar terms, exports reached USD 4.5 billion, edging down from previous month’s USD 4.6 billion and the USD 4.6 billion recorded in the corresponding month of 2016. Growth in imports moderated from a 30.2% annual expansion in November to 16.7% in December. The deceleration was driven by a sharp slowdown in
the imports of capital goods, which expanded just 0.2%, down from the 30.2% expansion observed in November. In dollar terms, imports reached USD 5.4 billion, below the previous month’s USD 6.2 billion and above the USD 4.6 billion recorded in December 2016.
As exports contracted and imports expanded at a strong rate, the trade balance swung from a USD 33 million surplus in December 2016 to a USD 847 million deficit in December 2017 (November 2017: USD 1.5 billion deficit). For the year 2017, the trade balance posted an accumulated deficit of USD
8.5 billion, below the USD 7.6 billion deficit recorded in the 12 months up to November. The trade deficit in 2017 exceeded the previous record of USD 5.7 billion, established in 1994. Panelists participating in the LatinFocus Consensus Forecast expect exports to expand 6.1% in 2018 and imports to increase 7.3%, pushing the trade balance to a USD 9.8 billion deficit. For 2019, the panel expects exports to increase 5.8% and imports to expand 6.8%, with a trade shortfall of USD 11.1 billion.
FUENTE: Focus Economics - https://www.focus-economics.com/ - Desde Barcelona -España
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