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Argentina Business Forecast Report Q3 2014

  • June 2014
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views

The Argentine economy is reeling following the January 2014 currency devaluation. Economic growth has slowed markedly, prompting us to revise down our real GDP forecasts, as soaring inflation discourages investment and erodes purchasing power. Despite the negative impact that the devaluation has had on the domestic economy, it
has yet to pay dividends for the external account; the goods trade surplus continues to shrink relative to GDP, and we have recently revised our forecasts to account for a wider current account deficit in 2014 than was the case in 2013. Furthermore, the slowdown in economic activity has prompted a widening of the fiscal deficit, in
line with our expectations, as government spending accelerates and weak growth weighs on revenues. After several weeks of stability at the ARS8.000/USD mark, monetary authorities have once again opted for a gradual depreciatory policy, returning to the crawling peg against the US dollar, broadly in line with our forecast for this year.
Politically, we are starting to see signs of strain. The perception of heightened street crime prompted incidents of vigilante justice in March and April, undermining the narrative that President Cristina Fernandez de Kirchner has presented, in which she, and her husband Nestor Kirchner before her, presided over a decade of economic
expansion and social inclusion. While we expect that political pressures will not boil over into larger protests, with moderate policies and candidates gaining ascendance up to the October 2015 general election, we highlight the potential for greater social unrest as the economy slows this year and crime remains high.


Major Forecast Changes

Real GDP growth will slow to 0.4% in 2014, a downward revision from our earlier forecast of 1.2%, as the impacts of the January currency devaluation weigh on private consumption and fixed investment to a greater extent than we had originally factored in. This forecast implies a substantial slowdown from 3.0% real GDP growth recorded
in 2013.

Weaker-than-expected exports in the first four months of 2014 have caused us to revise our goods trade forecast for this year, implying that the current account deficit will widen to 0.8% of GDP compared to 0.7% of GDP in 2013.

Table Of Contents

Argentina Business Forecast Report Q3 2014
Executive Summary. 5
Core Views..5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics . 8
Rising Crime Concerns Another Challenge For Fernández8
Crime in Argentina has eclipsed inflation as a top concern among survey respondents recently, likely in response to a spate of vigilante
justice and mob attacks carried out against alleged street criminals. We believe that this situation highlights the popular frustration with
Fernández' perceived failings on security policy, and reveals an issue that will remain front and centre during the 2015 presidential
campaign, likely benefiting opposition candidates.
Table : Political Over view .8
Long-Term Political Outlook.. 10
Significant Structural Challenges Ahead...10
Argentina scores above average for Latin America in our Long-Term Political Risk Ratings, but we see growing policy challenges that
the country must confront over the next decade. Moreover, Argentina's increasing international isolation and the continued dominance
of the ruling Frente Para la Victoria party limit policy options going forward. If the government cannot address high inflation and a
weakened business environment, we believe it will likely face a sharp macroeconomic adjustment over the next decade.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings... 13
Economic Activity... 14
Weakening Consumption And Investment To Drive GDP Slowdown..14
Argentine real GDP growth will slow to 0.4% in 2014, a downward revision from our earlier forecast of 1.2%, as the impacts of the
January currency devaluation weigh on private consumption and fixed investment to a greater extent than we had originally factored in.
This forecast implies a marked slowdown from 3.0% real GDP growth recorded in 2013.
table: GDP By Expenditure...14
Expenditure Breakdown..14
Exchange Rate Policy. 16
ARS: Peso To Gradually Weaken Over Next Several Quarters.16
Table: Currency Forecast..16
Balance Of Payments.. 18
Narrower Trade Surplus To Widen Current Account Deficit.18
Weaker-than-expected exports in the first four months of 2014 have caused us to revise our goods trade forecast for this year, implying
that the current account deficit will widen to 0.8 % of GDP this year compared to 0.7 % of GDP in 2013. That said, we expect that the
effects of a substantially weaker exchange rate, combined with stronger domestic energy production, will lead to a narrower current
account deficit of 0. 7% of GDP in 2015.
Table: Current Account...19
Fiscal Policy 20
2014 To See Largest Budget Shortfall In A Decade...20
Argentina's fiscal deficit will widen this year, as the inflationary impact of the January 2014 currency devaluation and higher spending
on wages boost government expenditures, at the same time as a major slowdown in economy activity depresses revenue growth. We
forecast the primary budget deficit will widen from 0.7% of GDP in 2013 to 0.9% of GDP this year.
Table: Fiscal Policy21
Chapter 3: 10-Year Forecast... 23
The Argentina Economy To 2023... 23
XXXXXXXXXXXXXXXXXXXXXX...23
Argentina's economic future is largely dependent on how long President Cristina Fernández de Kirchner can sustain policies that are
creating significant economic imbalances within the Argentine economy. We believe that the longer these policies are in place, the
greater will be the risks to Argentina's vast economic growth potential.
table : Long-Term Macr oec onomic Forecasts 23
Chapter 4: Business Environment. 25
SWOT Analysis 25
BMI Business Environment Risk Ratings.. 25
Table : BMI Busi ness And Operati on Ris k Rati ngs 26
Table : BMI Legal Framew ork Rati ng.27
Infrastructure .. 28
Table: Labour Force Quality..28
Market Orientation... 29
TABLE: LATIN AMERICA - ANN UAL FDI INFLOWS.29
Table : Trade And Investme nt Rati ngs .30
Operational Risk.. 31
TABLE: Top Export Destinations (USDmn) ...31
Chapter 5: Key Sectors.. 33
Freight Transport. 33
Table: Rail Freight..34
Table: Air Freight34
Table : Maritime Freig ht.35
Pharmaceuticals and Healthcare... 36
table : US - Refi ned Zinc Producti on and Consumpti on ('000 tonnes )... 38
Table: Healthcare Expenditure Trends, Historical Data And Forecasts 38
Other Key Sectors... 41
Table: Oil and Gas Sector Key Indicators.41
table : Telec oms Sect or Ke y Indicat ors 41
table: Infrastructure Sector Key Indicators...41
table: Defence and Security Sector Key Indicators...42
table: Food and Drink Sector Key Indicators.42
table: Autos Sector Key Indicators...42
Chapter 6: BMI Global Assumptions. 43
Global Outlook. 43
Emerging Market Deceleration43
Table : Global Assumpti ons.43
Table : Devel oped States , Real GDP GrowtH , %...44
Table : BMI VERSUS BLOO MBERG CON SENSUS REAL GDP GROWTH FORECASTS, %. 44
Table : Emergi ng Mar kets , Real GDP Growt h, %..45

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