Argentina: Downside Risks to 2013-14 Outlook Remain Pressing


The GDP picture for 2013 and 2014 has improved despite data looking mixed. Part of the reason could be the assumption that INDEC, Argentina’s statistics agency, will continue to over-report GDP and production data while simultaneously under-reporting inflation (see box below). On a positive note, the IMF and INDEC have been working together to “upgrade” GDP and inflation reporting, although September CPI still came in at the standard 10.5% (y-o-y). Q2 GDP, meanwhile, soared by 8.3% (y-o-y), up from 3.0% in Q1 and 0% in Q2 2012. Base year effects likely played a part in the strong outturn. Going into Q3, the economic activity indicator eased from 5.1% (y-o-y) in July to 4.0% in August. The pronounced downturn in neighbouring Brazil has hit activity: for example, auto exports suffered a second consecutive decline in September, of 8.7% (y-o-y) after August’s 6.5% drop.

Prices for soyabeans (Argentina’s most lucrative export) remain high despite having dipped recently. Still, farmers’ margins are squeezed by a 35% export tariff and having to convert US dollar payments into pesos. High inflation is leading to the hoarding of some of this year’s crop as landowners hedge against volatile price pressures. This, in turn, is affecting tax revenues which rose by 25.2% (y-o-y) in September, down from 31% in July, while trade-related tax receipts only managed 6.3%. Meanwhile, exchange rate controls – put in place two years’ ago to stem capital outflow – are weighing on forex reserves which are declining by US$800mn a month. In August, they fell to US$30.7bn, their lowest level since December 2006. Next year, the government faces an uphill battle maintaining the current pace of exports in an environment where Brazilian growth is weak and US dollars (needed to sustain fiscal spending and domestic demand) are increasingly scarce.

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