Argentina Business Projection Industry Update Quarter 1 2012

  • December 2013
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views

Opportunities exist across a range of consumer-oriented segments ,
but the country will continue to lag behind more investor-friendly
economies in Latin America as concerns about spiralling inflation
and government interference remain unaddressed.
While economic data remains positive, we believe that Argentina is
moving along an increasingly unsustainable macroeconomic policy
trajectory. This could lead to a devaluation of the peso if the current
distortions are not addressed.
The domestic consumer will continue to be a key driver of economic
growth, while the supporting role of exports and fixed investment
could be eroded by weak commodity prices and an increasingly
hostile business environment.
The resounding victory of Cristina Fernández in the October 2011
presidential elections will likely see a perpetuation of the current
expansionary economic policy mix, which will in turn cause inflation
to remain in the double-digits for a prolonged period of time.

Major Projection Changes

Given the Argentine central bank’s tight grip on the ARS /US USD
exchange rate, which has resulted in a widening of the spread between
the official and the unofficial exchange rates, we have started
forecasting a parallel ARS /US USD exchange rate based on purchasing
power parity. As we expect inflation to remain high in Argentina over
the next few quarters, we are projecting an average parallel rate
of ARS 5.35/US USD for 2012 and ARS 6.1/US USD for 2013.

Key Risks To Outlook

Upside Risk To 2012 Foreign Direct Investment: Progress in
reaching a deal with the Paris Club group of outstanding creditors
could prompt an uptick in inflows.
Upside Risks To 2012 Real Gross Domestic Product Growth: The authorities’ determination
to make economic growth their first priority could see fiscal
and monetary policy grow more than we currently expect, pushing
real Gross Domestic Product growth above our 2102 projection .
Business

Table Of Contents

Executive Summary........... 5
Core Views.............5

Major Projection Changes
........5
Key Risks To Outlook............5
Chapter 1: Political Outlook............... 7
Industry SWOT Analysis ......7
BMI Political Risk Ratings.....7
Domestic Politics .............. 8
IMF Assistance Increasingly Likely.......8
It looks increasingly likely that the IMF will provide Bangladesh financial assistance through its Extended Credit Facility, as the
organisation’s stance towards the US USD 1bn loan appears to be softening. While the fact that the cumulative current account balance
for FY 2011/12 (July-June) remains in surplus suggests IMF assistance may not be necessary, we highlight that weakening reserves
indicate otherwise. That being said, we caution that the government’s centre-left political measures could derail the loan process.
TABLE: Political Overview.... 8
Long-Term Political Outlook............ 10
Limited Chances Of Major Improvement.............10
Although Bangladesh returned to full civilian rule following elections in December 2008, the political system remains immature and
prone to instability. We see only limited prospects of a substantial improvement over the next 10 years.
Chapter 2: Economic Outlook.......... 13
Industry SWOT Analysis ....13
BMI Economic Risk Ratings13
Economic Activity ........... 14
Consumer-Led Slowdown...14
Our below-consensus outlook for real Gross Domestic Product growth to moderate in Bangladesh appears to be well placed. We believe that the country’s
economy, driven by consumer goods and services, will see a marked slowdown as the Bangladeshi consumer faces several headwinds.
At the moment, we are pencilling in real Gross Domestic Product growth to fall to 5.9% in FY 2011/12 (July-June) from 6.7% in the previous fiscal year.
TABLE: ECONOMIC ACTIVITY.... 14
Monetary Policy ............... 16
Bangladesh Bank To Pause Despite Stubborn Inflation.....16
Even though consumer price inflation has been more sticky than expected, we continue to hold to our outlook that Bangladesh Bank
will pause on further rate hikes. Precipitously slowing money supply growth suggests disinflation is imminent and that (despite the
stubbornness of inflation) the central bank’s overall monetary programme for FY 2011/12 is largely on track. That said, we note that risks
to our view are heavily weighted to the upside.
TABLE: MONETARY POLICY...... 17
Fiscal Policy ... 18
Fading Foreign Funds A Continuing Challenge..18
Even though official statistics paint a relatively positive picture of the government’s fiscal performance so far in FY 2011/12, the rapid
decline of net foreign aid should increasingly cause more difficulties. Unfortunately for Bangladesh, its major bilateral donors are facing
fiscal pressures of their own. Furthermore, domestic shortcomings, in terms of project implementation concerns, should continue to be a
barrier for any resurgence in foreign assistance.
TABLE: FISCAL POLICY.............. 19
Balance Of Payments ..... 20
Current Account Returning To Deficit After Seven Years...20
Bangladesh’s current account balance looks set to return to deficit territory in FY 2011/12 after seven years in surplus. Our expectation
for a weakening of export growth, coupled with insufficient remittance inflows, has led us to downgrade our current account projections.
For FY 2011/12 (July-June), we are pencilling in a nominal current account deficit of US USD 1.3bn (or 1.1% of Gross Domestic Product ), down from a US USD 1.0bn
(0.9% of Gross Domestic Product ) surplus in FY 2010/11.
TABLE: CURRENT ACCOUNT ..... 21
Chapter 3: 10-Year Projection ............ 23
The Bangladeshi Economy To 2021 23
Long-Term Potential Strong But Restricted .......23
We believe that a real Gross Domestic Product growth rate above 6.0% for Bangladesh is sustainable in the long term given the increasing size of the
workforce. However, to achieve growth in the 7-8% range and higher, productivity will need to improve. Until this happens, Gross Domestic Product per
capita - while on an upward trajectory - will remain relatively low.
TABLE: Long-Term Macroeconomic Projections ............. 23
Chapter 4: Business Environment... 25
Industry SWOT Analysis ....25
BMI Business Environment Risk Ratings............25

Environment Overview Outlook....... 26
Institutions ...... 26
TABLE: BMI Business And Operation Risk Ratings........ 26
TABLE: BMI Legal Framework Rating............... 27
Infrastructure .. 28
TABLE: Labour Force Quality............ 29
Market Orientation ........... 30
TABLE: Asia, Annual FDI Inflows........ 30
TABLE: Trade And Investment Ratings............. 31
TABLE: TOP EXPORT DESTINATIONS ....... 31
Operational Risk .............. 32
Chapter 5: BMI World Assumptions................ 33
World Outlook. 33
Eurozone Break-Up Risks Rising .......33
TABLE: GLOBAL ASSUMPTIONS ................ 33
TABLE: DEVELOPE D STATES REAL Gross Domestic Product GROWTH FORECAST .............. 34
TABLE: REAL Gross Domestic Product GROWTH CONSENSUS FORECASTS ......... 34
TABLE: EMERGING MARKETS REAL Gross Domestic Product GROWTH FORECAST ............. 35

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