Itaú BBA - Argentina’s GDP falls 2.5% in 2018

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Argentina’s GDP falls 2.5% in 2018

March 22, 2019

Decelerating activity also led to higher unemployment in 4Q18.

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GDP fell sharply in 4Q18. GDP fell by 6.2% yoy, after a contraction of 3.7% in the previous quarter (revised down from -3.5%). The output decline in 4Q18 was slightly below the official monthly GDP proxy contraction of 6.4%. On a sequential basis, GDP decreased by 1.2% quarter over quarter, leaving a negative statistical carryover of 2.4% for 2019. Decelerating activity led to higher unemployment in 4Q18. The unemployment rate increased to 9.1% (from 7.2% in the same quarter of last year), averaging to 9.2% in 2018 (compared with 8.3% in 2017).

We project a GDP contraction of 1.2% for this year, despite an expected sequential recovery in the economy after 1Q19. Higher interest rates, further fiscal consolidation, a large negative statistical carryover and uncertainties surrounding the outcome of the presidential election will likely lead to another year of negative growth. 


Former president Michel Temer was arrested yesterday, as a result of the Car Wash investigation. According to Folha de São Paulo, Temer is accused by the Public Prosecutor of helping divert up to BRL 1.8 billion over 40 years, through undue advantages in contracts involving state-owned companies and public entities. Michel Temer was president of Brazil from August 2016 to December 2018.

Tax collection came in at BRL 115 billion in February, in line with our call (BRL 114.6 bn) and slightly above the market’s (BRL 110 bn). The indicator increased 5.4% yoy in real terms in the month. Excluding revenues from the REFIS/PRT, tax collection keeps a good pace, but with some weakening at the margin. Real revenues ex-REFIS increased 6.2% yoy in real terms in the month, with the 3-mma going to 3.7% from 3.1% in January. The central government primary result for February will be released next week.


Domestic demand weakened in 4Q18, dragged by both public and private spending, while exports also decelerated (reflecting slowdown in the US economy). Mexico’s aggregate supply grew 2.7% yoy, above median market expectations (2.5%) and down from 3Q18 growth rate of 3.5%. According to calendar adjusted figures, aggregate supply grew at a similar rate, with GDP and imports decelerating to 1.7% yoy (from 2.5% in the 3Q18) and 5.6% (from 6.3%), respectively. Domestic demand decelerated to 0.8% yoy in 4Q18 (from 1.8% in the 3Q18) and, at the margin, using seasonally-adjusted figures, the quarter-over-quarter annualized growth rate (qoq/saar) was -2.1% in the 4Q18 (from 0.3% in 3Q18).

We expect a GDP growth of 1.4% for 2019 (from 2.0% in 2018). Uncertainty over the direction of domestic policy and remaining uncertainties about the approval of the USMCA by the U.S. Congress are weighing on investment, while deceleration in the U.S. economy is limiting exports. In this context, the labor market is weakening, curbing consumption growth. Moreover, in the short term (January and February) we expect activity to be affected by one-off factors (gasoline shortages) and strikes in some manufacturing firms (still going on).
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Day Ahead: At 11:00 AM, INEGI will publish CPI inflation figures for the first half of March. We expect bi-weekly inflation to post 0.29% (from 0.30% a year ago). Assuming our forecast is correct, headline inflation would be 3.98% yoy (from 3.99% in the second half of February).


Day Ahead: The central bank will hold its second monetary policy meeting of 2019. We expect no change of status-quo, with stable rates remaining likely for still some time. At 4:00 PM, the coincident activity indicator (ISE) for the month of January will be released. We expect the series to grow at a stable 3.0% yoy, driven by retail sales and manufacturing.

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