Argentina Business Forecast Report Q1 2015

  • December 2014
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views

Tepid private consumption and a weaker net exports position will weigh on Argentine real GDP growth in 2015. A negotiated settlement allowing for the resumption of coupon payments on sovereign bonds in early 2015 will improve investor sentiment somewhat, but a substantial uptick in investment is unlikely while the current
administration remains in power. Pre-election spending and rising interest payments will see Argentina’s primary and nominal budget deficits widen in 2015. The Argentine government will tap its foreign reserves in order to finance the budget shortfall, exacerbating the country’s weak external account position. The Argentine government will allow the peso to depreciate over the coming months, as a drop in foreign currency reserves keeps downwards pressure on the exchange rate. We expect a more substantial devaluation to occur after the October 2015 presidential election, as political pressure will preclude a major currency adjustment ahead of the poll.

Major Forecast Changes

We revised down our 2016 exchange rate forecast, as we believe that an easing of capital controls under a newly-elected government will drive a sharp depreciation in the peso.

Table Of Contents

Argentina Business Forecast Report Q1 2015
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic/Short-Term Politics 8
Local Election Result A Blow To FPV 8
A deteriorating economy, rising crime and a lingering debt standoff will weigh on political support for the ruling Frente Para la Victoria
(FPV) ahead of Argentina's next presidential election in October 2015. A poor showing by the FPV in a recent local election has
reinforced this view.
Tab le: POLITICAL OVERVIEW 8
Long-Term Political Outlook 9
Economic Reforms Key To Political Stability 9
Argentina scores above the Latin American average in our Long-Term Political Risk Index, but continued stability hinges on the
government's ongoing policy pivot towards m ore market -friendly policies. While the October 2015 general election is set to usher in a
more reform-minded government, we highlight several risks that could threaten the country's multiyear political outlook.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Activity 14
Growth To Remain Hamstrung By Weak Consumption And Investment 14
Tepid private consumption and a weaker net exports position will weigh on Argentine real GDP growth in 2015. A negotiated settlement
allowing for the resumption of coupon payments on sovereign bonds in early 2015 will improve investor sentiment somewhat, but a
substantial uptick in investment is unlikely while the current administration remains in power.
Tab le: Eco nomic Activit y 14
Exchange Rate Policy 16
ARS: Drop In Reserves To Drive FX Weakness 16
The Argentine government will allow the peso to depreciate over the coming months, as a drop in foreign currency reserves keeps
downwards pressure on the exchange rate. We expect a more substantial devaluation to occur after the October 2015 presidential
election, as political pressure will preclude a major currency adjustment ahead of the poll.
Table: Exchange Rate 16
Table: CURENCY FORECAST 16
Balance Of Payments 18
Wider Trade Surplus Will Not Prevent Drop In Reserves 18
A rebound in soy bean prices will drive a modest widening of Argentina's goods trade surplus in 2015, leading to a narrower current
account deficit. However, rising interest payments on external debt will see foreign currency reserves continue to fall, underpinning our
view that another peso devaluation will occur after the October 2015 presidential election.
Table: Current Account 18
Fiscal Policy 20
Interest Payments And Pre-Election Spending To Drive Wider Shortfall 20
Pre-election spending and rising interest payments will see Argentina's primary and nomina l budget deficits widen in 2015. The
Argentine government will tap its foreign reserves in order to finance the budget shortfall, exacerbating the country's weak external
account position.
Table: Fiscal Policy 20
Business Monitor International Ltd www.businessmonitor.com 3
Contents
Chapter 3: 10-Year Forecast 23
The Argentine Economy To 2023 23
Energy Sector To Bolster Long-Term Growth 23
Argentina's real GDP growth will remain weak over the next five years, amid a gradual reversal of the interventionist policies of
President Cristina Fernández de Kirchner. Growth will accelerate during the second half of our 10-year forecast, driven by rising natural
gas production and stronger inbound investment as the policy e nvironment continues to evolve in a more business-friendly direction.
Table: Long-Term Macroeconomic Forecasts 23
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Operational Risk 28
Tab le: Operatio nal Risk Index 28
Transport Network 29
Tab le: Lati n America Tra nsport Network Risks 30
Economic Openness 34
Tab le: Lati n America - Eco nomic Openness Risk 34
Table: Export By Product, 2007-2013 35
Chapter 5: Key Sectors 37
Infrastructure 37
Table: Construction And Infrastructure Industry Data 38
Table: Construction And Infrastructure Industry Data 39
Oil and Gas 41
Table: Oil Production 42
Table: Oil Production 42
Table: Gas Production 43
Table: Gas Production 43
Other Key Sectors 45
Tab le: Phar ma Sector Key Indicators 45
Tab le: Teleco ms Sector Key Indicators 45
Tab le: Defence and Securit y Sector Key Indicators 45
Tab le: Food and Dri nk Sector Key Indicators 46
Tab le: Autos Sector Key Indicators 46
Tab le: Freight Key Indicators 46
Chapter 6: BMI Global Assumptions 47
Global Outlook 47
Warning Signs Growing 47
Table: Global Assumptions 47
Tab le: Develop ed Stat es, Real GDP Growt H, % 48
Tab le: BMI VERSUS BLOOMBERG CONSEN SUS REAL GDP GROWTH FORECASTS, % 48
Tab le: Emergi ng Mark ets , Real GDP Growth , % 49

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