Itaú BBA - ARGENTINA – Current Account Deficit Hits 20-Year High

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ARGENTINA – Current Account Deficit Hits 20-Year High

March 22, 2018

The current account deficit was covered by portfolio investments

The current account deficit doubled in 4Q17, to USD 8.7 billion, from a USD 4.2 billion deficit posted in the same quarter of 2016. The deficit was higher than market expectations (USD 8.0 billion according to Bloomberg), but lower than our forecast (USD 10.0 billion). The downward revision of the 3Q17 deficit helped to improve the accumulated deficit year to date. As a result the current account deficit hit USD 30.8 billion in 2017 (or 4.8% of GDP), marking the widest deficit in twenty years. 

The deterioration of external accounts in 4Q17 was once again driven by increased imports and higher interest debt payments. The trade balance for goods worsened to a deficit of USD 2.5 billion in 4Q17, from a surplus of USD 0.7 billion in the same quarter of 2016. Imports increased by a solid 25.4%, while exports ticked up 1.2% YoY. The deficit in the income balance also rose, to USD 4.3 billion (from USD 3.4 billion one year ago), reflecting both a higher interest bill and increased net dividend outflows. The service account deficit (mostly driven by a deficit in the travel account) was USD 1.9 billion, slightly higher than in 4Q16 (USD 1.7 billion). 

The current account deficit was covered by portfolio investments. Debt issuances from the treasury and central bank provided USD 10.5 billion in the last quarter of 2017, contributing to a rolling four-quarter net portfolio inflow of USD 34.7 billion, enough to fully cover the current account deficit for the year. As a result, external debt rose to USD 233.0 billion (or 36.6% of GDP), up from 32.7% in 2016.  Net direct investment (including reinvested earnings) continued to pick up in the four quarter, to USD 2.3 billion, totaling USD 10.7 billion in 2017 (1.7% of GDP) and showing a significant improvement from USD 1.5 billion in the previous year.

We expect the current account deficit to remain wide this year. However, the better-than-expected 4Q17 result indicates downside risk to our current account deficit forecast of 5.5% of GDP for this year. We still expect the deficit to be financed mostly by foreign-currency debt issuances.


Juan Carlos Barboza
Diego Ciongo

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