Itaú BBA - ARGENTINA – Sharp adjustment of current account in 4Q18

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ARGENTINA – Sharp adjustment of current account in 4Q18

March 26, 2019

The rapid adjustment of the current account deficit is ongoing.

The current account deficit narrowed to USD 2.3 billion in 4Q18, from a deficit of USD 9.4 billion in the same quarter of 2017. The deficit was slightly above the average response in the Bloomberg market analyst survey, of a deficit of USD 2.0 billion. As a result, the current account deficit for 2018 fell to USD 28.0 billion (5.4% of GDP), from USD 31.6 billion in 2017. At the margin, we estimate that the seasonally-adjusted current account deficit reached 0.5% of GDP in 4Q18.  

Trade balance for goods showed a surplus in 4Q18. Imports declined by 25% yoy due to a weaker currency and slowing internal demand, while exports increased by 10%, mostly due to a good wheat harvest. The trade balance for goods consequently improved to a surplus of USD 3.3 billion in 4Q18, up from a deficit of USD 2.4 billion in the same quarter of 2017. The deficit in the service account also decreased, to USD 1.3 billion (from USD 2.2 billion), mostly due a reduction in the deficit of the tourism account. The income balance (net interest bill and dividend payments) remained unchanged at USD 4.7 billion in 4Q18.

The current account deficit was mainly financed by IMF disbursements. The treasury received net inflows of USD 14.5 billion from the IMF as well as issuances of ARS-denominated instruments purchased by foreign investors (Lecaps). The enlargement of the currency swap with Bank of China provided an additional USD 8.9 billion. In this context, the central bank eliminated its stock of short-term bills (Lebacs) and increased its international reserves by USD 16.7 billion. Net direct investment (including reinvested earnings) increased to USD 2.8 billion in 4Q18, from USD 2.1 billion in 4Q17. Finally, external debt increased to USD 278 billion as of December 2018 (53.6% of GDP), up from USD 235 billion in 2017 (37% of GDP).

The rapid adjustment of the current account deficit is ongoing. A devalued currency, weak internal demand and the normalization of soy output will likely continue to support the trade and service balance. We forecast a significant narrowing of the current account deficit this year, to 1.2% of GDP.

 

Juan Carlos Barboza
Diego Ciongo


 



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