Itaú BBA - ARGENTINA – Activity recovery will not last

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ARGENTINA – Activity recovery will not last

September 26, 2019

We expect another round of weak activity indicators in the coming months.

Activity showed growth in July, both on a year-over-year and sequential basis. The EMAE (official monthly GDP proxy) increased by 1.2% mom/sa and 0.6% yoy, beating both the Bloomberg market consensus (-1.6% yoy) and our expectations (-1.8% yoy). Quarter-over-quarter growth was positive at 0.4% annualized, up from -1.2% in 2Q19.

Primary activities continued to grow, while the rest of the sectors continued to contract, albeit at a slower pace. The Agriculture, Mining and Fishing sectors were up by 31% yoy in the quarter ended in July (from 34.9% in 2Q19 and 4.6% in 1Q19) as the harvest continued to normalize. The rest of the sectors continued to contract. Manufacturing fell by 4.6%, but better than the -6.7% in 2Q19. Construction declined by 4.6% yoy (from -5.6% in 2Q19), while Services contracted by 2.2% yoy (from -3.0%).

Our seasonal adjustment shows a better performance at the margin for most sectors. Primary activities climbed by 6.1% qoq/saar in July, slowing from 6.5% in 2Q19. Manufacturing grew 1.6% qoq/saar, up from 0.9% in June. The Services sector posted zero growth, after falling by 2.1% qoq/saar in 2Q19. The Construction sector was the only one to show further contraction, dropping by 8.2% qoq/saar from a decline of 5.1% in the quarter ended in June.

We expect another round of weak activity indicators in the coming months. The ARS depreciated and uncertainties over policy direction rose following the primary elections. Debt restructuring and capital controls are already in place. We expect a GDP decline of 2.5% this year.



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