Argentina: Downside Pressures on the Growth Outlook

The Q3 national accounts were released on December 20 (after we went to print), but INDEC’s monthly indicator of economic activity suggests that the official outturn likely advanced by 4.6% (y-o-y), almost halving the previous quarter’s 8.3% pace. Most economists estimate that the true rate of growth is even lower than what is officially being reported. Soaring inflation, an overvalued peso (trading at double the official rate on the black market thanks to currency controls) and falling forex reserves are weighing on activity. Our panel’s 2014 GDP forecast has slipped from 2.1% in November to 1.8% this month. Official inflation remained at 10.5% (y-o-y) in November for a fourth straight month but, again, official statistics significantly under-report the true pace of price increases (see box, below). Looting in the provinces – triggered by police strikes demanding increased salaries in the face of rising living costs – underscores the problem with the government’s money-printing endeavours. Provincial governments did finally acquiesce to demands for a wage hike, adding to already-overextended local finances. On the upside, industrial output jumped in October but the y-o-y rate stood at -0.5%. The productive sector has not been helped by currency controls impeding the import of equipment, while the drop-off in Brazilian demand is hurting export prospects. With domestic activity also showing signs of moderation, tax revenues have ebbed. Our panel’s 2013 forecast for the budget deficit has widened.

The government hopes to attract investment for its underdeveloped energy sector and, by default, get its hands on some badly-needed US dollars. One first step: the recent announcement that a new CPI and GDP index will be unveiled in February and March 2014, respectively, in compliance with the IMF’s demands for more representative statistics.


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