Itaú BBA - ARGENTINA – Economic Activity Fell by 2.6% in 2018

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ARGENTINA – Economic Activity Fell by 2.6% in 2018

February 27, 2019

We revised our GDP growth forecast for this year downward.

Activity declined more than expected in December. The EMAE (official monthly GDP proxy) decreased by 7.0% yoy in December (Bloomberg survey: -5.2% yoy), leading to a 2.6% contraction in 2018, missing our GDP forecast of 2.2% and central bank survey expectations of 2.4% yoy. On a sequential basis, the economy grew 0.7% mom/sa, bringing the quarter-over-quarter contraction to 6.8% (annualized) in 4Q18 (vs. a contraction of 3.2% in 3Q18). The statistical carryover for 2019 is - 3.1%. Indec (official statistics agency) is scheduled to publish the national accounts for 2018 on March 21.

During 4Q18, only primary activities expanded, helped by a good wheat harvest. The primary sector (agriculture, fishing and mining) grew 1.7% yoy, while all the other sectors fell deeper into recession. The manufacturing sector fell 11.5%, worsening from the 6.6% drop in 3Q18. Construction declined by 9.6% (vs. -0.8% in the previous quarter), while services contracted by 4% (vs. -1.6% in 3Q18).

According to our seasonal adjustment, most of the sectors were weak in the last quarter of 2018 also on a sequential basis. Primary activities increased by 9.8% annualized, down from 135% in 3Q18, when agricultural output began to normalize (following the draught). Construction plummeted 38.3%, from an expansion of 6.1% in the previous quarter. Services declined by 24.7%, coming from a 13.1% contraction in 3Q18. Finally, manufacturing decreased by 16.5% (vs. -17.6% in 3Q18).

We revised our GDP growth forecast for this year downward. Expected weaker internal demand, due to higher interest rates and the large negative statistical carryover, will likely offset the long-awaited sequential recovery of the economy after a 1Q19 driven by the soy harvest. We now forecast a contraction of 1.2%, vs. 0% in our previous scenario.

Juan Carlos Barboza
Diego Ciongo

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