After days of financial volatility reminiscent of previous economic crises, the government announced on 8 May it was seeking IMF assistance to shore up the economy. Financial turbulence and growing concerns over Argentina’s capacity to service its large foreign-debt commitments caused
the peso to lose over 10% of its value in a single day on 3 May, prompting the Central Bank to forcefully intervene. On 4 May, the government announced steep cuts in public spending and set a more ambitious fiscal deficit reduction target for 2018 to appease markets and restore
confidence. The policies implemented will inevitably weigh on the recovery of the real sector, which continued to grow at a strong pace in Q1. It also represents a huge setback for President Mauricio Macri’s economic policy of gradualism, as well as his re-election bid in next year’s election.
Recent developments have generated uncertainty on the country’s economic outlook, and many of our panelists are still assessing the impact they will have. Nevertheless, panelists participating in the LatinFocus Consensus Forecast expect economic prospects to deteriorate and foresee
the economy expanding 2.3% in 2018, which is down 0.3 percentage points from last month’s forecast. For 2019, growth is expected to reach 3.0%.
National inflation was unchanged in March at February’s 25.4%. A weaker peso, subsidy cuts in the second quarter and prospects of additional subsidy cuts will fan price pressures this year and next, despite the Central Bank’s decision to hike the seven-day repo repurchase rate on 4 May to a record high of 40.00%. Panelists expect national inflation as measured by INDEC to end 2018 at 23.7%, which is up 3.1 percentage points from last month’s forecast. For 2019, inflation is seen moderating to 16.7%. POLITICS | Argentina requests IMF assistance to avert financial crisis
amid currency selloff On 8 May, President Mauricio Macri announced he would seek IMF assistance
to shore up the economy and avert a crisis. The monumental decision shook markets and followed days of financial volatility and growing uncertainty that led the Argentine peso to depreciate over 10% on 3 May, exposing the country’s economic vulnerabilities. While negotiations are currently underway, government sources confirmed on 10 May they are opting for an IMF Standby
Arrangement (SBA) to cover an expected USD 30 billion in financing needs for the next two years. The SBA is a stringent IMF program that will likely require the country to push through deep-seated reforms and big spending cuts. Although the terms of the IMF loan agreement will likely exacerbate
the expected economic deceleration in the short-term, the loan could restore confidence by correcting structural imbalances and building buffers in the medium-term. The IMF deal, however, also unsettles the political landscape ahead of next year’s presidential elections. POLITICS | Argentina requests IMF assistance to avert financial crisis
amid currency selloff
On 8 May, President Mauricio Macri announced he would seek IMF assistance to shore up the economy and avert a crisis. The monumental decision shook markets and followed days of financial volatility and growing uncertainty that led the Argentine peso to depreciate over 10% on 3 May, exposing the country’s economic vulnerabilities. While negotiations are currently underway,
government sources confirmed on 10 May they are opting for an IMF Standby Arrangement (SBA) to cover an expected USD 30 billion in financing needs for the next two years. The SBA is a stringent IMF program that will likely require the country to push through deep-seated reforms and big spending cuts. Although the terms of the IMF loan agreement will likely exacerbate the expected economic deceleration in the short-term, the loan could restore confidence by correcting structural imbalances and building buffers in the medium-term. The IMF deal, however, also unsettles the political landscape ahead of next year’s presidential elections. In addition to requesting the IMF deal, policymakers have made swift policy changes in recent weeks to stem investor flight. The Central Bank hiked interest rates three times in eight days, with the latest hike on 4 May bringing
the 7-day repo reference rate to an all-time high of 40.00%. In addition, on the same day, the government announced that it will reduce public spending by USD 3.2 billion this year and seek to narrow the primary fiscal deficit target to a more ambitious 2.7% of GDP (from 3.2% of GDP previously). This mix of policies will likely inevitably weigh on the economy in the near term. However, the strong intervention by the Central Bank and the government should help
pacify markets and restore financial stability. The terms of Argentina’s agreement with the IMF will be key to the economy’s outlook, as tough conditions could see even more aggressive fiscal adjustment implemented along with painful reforms. However, there is a possibility that
Argentina will secure a more favorable deal due to the current government’s strong pro-market inclination and the increased flexibility shown by the Fund in recent years when granting financial assistance to economies in distress. The loan should help stocks of international reserves stabilize, as well as the currency.
The decision to request IMF assistance will also likely have strong repercussions in the political arena, which could alter the economic outlook. Soliciting IMF assistance may result in declining political support for the government ahead of next year’s presidential election, giving an opportunity to the fragmented opposition to strengthen ahead of the vote. This could generate significant
market uncertainty over the re-election of Mauricio Macri as president in 2019 and the future of his market-friendly reforms in Argentina. The majority of panellists revised their forecasts in the past few weeks and for this month LatinFocus Consensus Forecast report expect the Argentine
economy to expand 2.3% in 2018, which is down 0.3 percentage points from last month’s forecast. For 2019, panelists expect the economy to expand 3.0%. In addition to requesting the IMF deal, policymakers have made swift policy changes in recent weeks to stem investor flight. The Central Bank hiked interest rates three times in eight days, with the latest hike on 4 May bringing
the 7-day repo reference rate to an all-time high of 40.00%. In addition, on the same day, the government announced that it will reduce public spending by USD 3.2 billion this year and seek to narrow the primary fiscal deficit target to a more ambitious 2.7% of GDP (from 3.2% of GDP previously). This mix of policies will likely inevitably weigh on the economy in the near term. However, the strong intervention by the Central Bank and the government should help
pacify markets and restore financial stability. The terms of Argentina’s agreement with the IMF will be key to the economy’s outlook, as tough conditions could see even more aggressive fiscal adjustment implemented along with painful reforms. However, there is a possibility that
Argentina will secure a more favorable deal due to the current government’s strong pro-market inclination and the increased flexibility shown by the Fund in recent years when granting financial assistance to economies in distress.
The loan should help stocks of international reserves stabilize, as well as the currency.
The decision to request IMF assistance will also likely have strong repercussions in the political arena, which could alter the economic outlook. Soliciting IMF assistance may result in declining political support for the government ahead of next year’s presidential election, giving an opportunity to the fragmented opposition to strengthen ahead of the vote. This could generate significant
market uncertainty over the re-election of Mauricio Macri as president in 2019 and the future of his market-friendly reforms in Argentina. The majority of panellists revised their forecasts in the past few weeks and for this month LatinFocus Consensus Forecast report expect the Argentine
economy to expand 2.3% in 2018, which is down 0.3 percentage points from last month’s forecast. For 2019, panelists expect the economy to expand 3.0%.
REAL SECTOR | Economic activity picks up steam in February The monthly indicator for economic activity (EMAE, Estimador Mensual de Actividad Económica) picked up in February, with economic activity jumping from a 4.3% year-on-year expansion in January to 5.1%. This marked the
twelfth consecutive month of economic expansion in Argentina and the fastest growth since June 2015.
February’s print was driven by robust growth in almost all components of the index. Notably, year-on-year growth in financial intermediation quickened from 5.2% in January to 7.4% in February. The manufacturing industry expanded 5.8% in February (January: +3.0% year-on-year) and construction 12.7% (January: +14.3% yoy).
A seasonally-adjusted month-on-month comparison showed that economic activity swung from a revised 0.7% increase (previously reported: +0.6% month-on-month) to a 0.2% contraction in February. Lastly, average economic activity jumped from 3.0% in January to a two-year high of 3.6% in February. REAL SECTOR | Growth in industrial output moderates in March In March, industrial production expanded 1.2% over the same month last year, according to data released by the National Statistical Institute (INDEC) on 2 May. Although the figure was a deceleration from the strong 5.3% year-onyear growth observed in February, it marked the 11th consecutive month of
expansion in industrial output. March’s slowdown reflected slower growth in most components in the index. Output in the automotive industry slowed from a 61.3% increase in February
to a still-strong 26.0% rise in March. Growth in the production of non-metallic mineral products reached 3.9% annually, down from 12.5% in February. The food industry swung from a 2.5% expansion in February to a 1.0% decline in March.
Panelists participating in the LatinFocus Consensus Forecast expect that industrial production will expand 2.4% in 2018, which is down 0.2 percentage points from last month’s forecast. For 2019, the panel expects industrial output to rise to 2.6%.
OUTLOOK | Consumer sentiment plummets to multi-year low in April The Universidad Torcuato di Tella (UTDT) consumer confidence index dropped from 43.8 points in March to an almost four-year low of 40.1 points in April. 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. April’s print reflected an across-the-board deterioration in all components
of the index and in all four geographical areas surveyed. Consumers had a more pessimistic view of personal financial situation, with that subcomponent recording the largest month-on-month drop. It was closely followed by consumers’ view on the macroeconomic outlook and their willingness to
purchase durable goods and big-ticket household items (appliances, cars and houses). Lastly, assessments of current and future economic conditions deteriorated as well.
Panelists surveyed for the LatinFocus Consensus Forecast see private consumption rising 2.4% in 2018, which is down 0.4 percentage points from last month’s forecast. For 2019, panelists expect private consumption to increase 3.0%.
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%. Inflation reached 25.4% in March, unchanged from February’s print.
National inflation as measured by INDEC is expected to be 23.7% at the end of the year 2018, which is up 3.1 percentage points from last month’s forecast. Inflation is expected to reach 16.7% 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% month- on-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 23.5% at the end of 2018, which is up 3.2 percentage points from last month’s estimate. Panelists estimate that inflation will end 2019 at 16.4%.
MONETARY SECTOR | Central Bank hikes repo rate to 40% to stem peso’s fall
On 4 May, the Central Bank of Argentina (Banco Central de la República Argentina, BCRA) increased the 7-day repo reference rate by 675 basis points to an all-time high of 40.00%. The decision marked the third rate hike in the span of a week. On 27 April, the Central Bank surprised markets by increasing interest rates 300 basis points from 27.25% to 30.25%; this was followed by
another hike on 3 May, bringing the rate to 33.25%, to stem the slide of the currency. The cuts reversed two rate cuts made early in the year after the Bank eased inflation targets on 28 December 2017 to support economic activity.
The radical measures taken since 27 April underscore the difficulties the Bank is facing to halt the decline of the Argentine peso against the US dollar. The peso ended the day at a record-low 22.27 ARS per USD on 3 May amid a broad-based selloff of emerging market assets due to increased prospects of rising U.S. interest rates. The economy has become severely exposed to
external shocks in recent months due to wide fiscal and current deficits and a high foreign-denominated debt burden. Moreover, the Bank used over 10% of the country’s international reserves to prop up the currency in the days prior to the final rate hike on 4 May.
The latest press statement released by the Central Bank on 5 May clearly expressed its commitment to use the tools at its disposals to stabilize the Argentine peso in the short-term and contain inflation in the medium- and long-term to reach the 15.0% inflation target by the end of the year. However,
it remains to be seen how markets will react to the latest Central Bank decision and how the Bank will respond to incoming data and new developments in the economy and forex markets. Panelists participating in the LatinFocus Consensus Forecast are still taking into account the latest developments and are readjusting their forecasts accordingly. On average, they see the 7-day repo repurchase rate ending 2018 at 29.78%. They see the 7-day repo repurchase rate easing further in
2019, closing the year at 19.68%.
MONETARY SECTOR | Argentine peso depreciates sharply amid selloff of emerging market currencies . The Argentine peso (ARS), which has come under severe pressure since the
end of April, depreciated to a multi-year low of 22.27 ARS per USD on 3 May. Volatility has persisted since then, and on 14 May the currency hit a new all-time low, trading at 25.00 ARS per USD. The result represented a steep 23.6% depreciation over the same day of the previous month and was also 61.0% weaker compared to the same day last year. In addition, it was 34.4%
lower year-to-date. The sharp depreciation partly reflects a broader trend among emerging
economies, where faster-than-expected monetary tightening at the U.S. Federal Reserve is triggering a sell-off of emerging market currencies. In Argentina, however, the sell-off has been more pronounced. The country is more dependent on external financing due to rampant inflation that impedes its government from lowering fiscal spending and the wide twin deficits
that makes it more vulnerable to external shocks. Market confidence has deteriorated rapidly and partly explains why the peso slid sharply despite a strong Central Bank intervention in which over USD 6.0 billion in international reserves were used. In a bid to stem the slide, the Central Bank also hiked the 7-day repo reference rate from 27.25% on 27 April to 40.00% by 4 May.
The peso’s current depreciation has sparked fears over the sustainability of the country’s large foreign denominated debt burden, which has grown substantially since President Mauricio Macri took office in late 2015 to finance fiscal spending as he tries to implement painful economic reforms without quickly reducing public spending. The ARS is expected to continue weakening this year and next and uncertainty over the country’s ability to service its debt remains high. In order to shore up funds, the government requested IMF assistance on 8 May. Analysts consider that for investor confidence to be
restored in the economy and currency, Argentina will need to significantly trim fiscal spending to diminish its financing needs. Panelists participating in the LatinFocus Consensus Forecast are still taking into account the latest developments in the Argentine forex markets. Panelists
surveyed for this month’s LatinFocus report expect the ARS to end 2018 at 24.28 ARS per USD. They project the Argentine peso will trade at 27.28 ARS per USD at the end of 2019.
EXTERNAL SECTOR | Trade deficit narrows in March Exports jumped from a revised 9.8% year-on-year increase in February (previously reported: +10.1% year-on-year) to a strong 17.2% expansion in March. The jump was driven by a double-digit increase in three of the four
categories of the index. In annual terms, exports of primary products expanded 29.8%, while export of fuels and energy surged 58.1%. Growth in imports slowed substantially from 26.3% in February to 8.8% in March. The increase was driven by a 31.6% expansion in fuel and lubricants
and a 14.3% increase in intermediate goods mostly used for industrial production in the country.
As exports expanded at a sharper pace than imports, the trade deficit narrowed from USD 914 million in February to USD 611 million in March (March 2017: USD 910 million deficit). March’s print marked the first trade deficit reduction in 11 months. The 12-month moving average of the trade deficit came in at USD 9.78 billion, slightly below February’s USD 10.08 billion deficit (March
2017: USD 1.28 billion surplus). The gaping trade deficit remains a major source of concern because it will contribute to a higher current account deficit, at a moment when the
government is regularly tapping into international bond markets 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. Such a scenario would force the government to keep borrowing from international sources to keep up with elevated public spending obligations. Panelists participating in the LatinFocus Consensus Forecast expect exports to expand 6.0% in 2018 and imports to increase 8.9%, pushing the trade balance to a USD 10.9 billion deficit. For 2019, the panel expects exports to
increase 6.6% and imports to also expand 7.4%, with a trade shortfall of USD 12.3 billion.
FUENTE: Por Focus Economics https://www.focus-economics.com/ Desde Barcelona España
No hay comentarios:
Publicar un comentario