Itaú BBA - ARGENTINA – External deficit correction continues in 2Q19

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ARGENTINA – External deficit correction continues in 2Q19

junio 27, 2019

We expect a trade surplus of USD 7.5 billion for 2019

The current account balance posted an important adjustment in 1Q19. The deficit narrowed to USD 3.8 billion in 1Q19, from a deficit of USD 9.4 billion in the same quarter of 2018, although it was wider than market expectations (USD 2.7 billion). As a result, the four-quarter rolling deficit came down to USD 22.0 billion (4.4% of GDP), from USD 27.5 billion (5.3% of GDP) in 2018. At the margin we estimate that the seasonally-adjusted current account deficit in 1Q19 reached 2.6% of GDP.

Trade balance for goods posted a surplus in 1Q19. The trade balance for goods improved to a surplus of USD 2.6 billion, from a deficit of USD 1.7 billion in the same quarter of 2018. The deficit in the service account halved to USD 1.7 billion (from USD 3.4 billion) mostly due to a reduction in the deficit in the tourism account. The income balance (net interest bill and dividend payments) worsened slightly to a deficit of USD 5.0 billion in 1Q19 (from USD 4.5 billion one year ago).

The current account deficit was financed mostly by FDI and trade finance. Net direct investment (including reinvested earnings) totaled USD 2.3 billion in 1Q19, slightly down from USD 2.4 billion in 1Q18. Trade finance inflows were USD 2.4 billion. International reserves remained almost unchanged in the quarter relative 1Q18. Finally, external debt totaled USD 276 billion by March 2019 (55.9% of GDP).

On a separate note, Argentina’s trade balance posted a record surplus in May. The trade surplus reached USD 1.4 billion, compared with a deficit of USD 1.3 billion in the same month of 2018. The surplus exceeded both our and market expectations (USD 1.0 billion and USD 1.1 billion, respectively). The 12-month trade balance doubled to USD 5.2 billion, from USD 2.6 billion in April. The three-month seasonally-adjusted and annualized surplus reached USD 13.1 billion, up from the USD 10.6 billion registered in the quarter ended in April.

Exports surged, driven by Agricultural products. Total exports increased by 16.5% yoy in May and expanded 4% mom/sa. In the quarter ended in May, exports increased by 4.3% (-2.3% in 1Q19) driven by agricultural exports (including manufactured agricultural products), which expanded by 7.4% yoy (helped by a low base of comparison due to the drought last year). Industrial product external sales continued to show a lackluster performance, dropping by 2.6% in the same period, mostly affected by lower car sales to Brazil. 

Imports contracted across the board. Total imports declined 28.0% yoy in May but remained flat compared with the result of April. In the quarter ended in May, imports fell by 31% (-27.9% in 1Q19), as imports of capital goods and parts fell 34.3% yoy, consumer goods imports (including cars) fell by 44.0%, while imports of intermediate goods dropped by 18.1%. 

Energy balance improved in May, mostly due to lower imports. The accumulated 12-month energy deficit fell to USD 1.7 billion, from USD 2.1 billion in April.

We expect a trade surplus of USD 7.5 billion for 2019 (from a USD 3.8 deficit last year), with a major narrowing of the current account deficit to 1.2% of GDP.

Juan Carlos Barboza
Diego Ciongo

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