Itaú BBA - ARGENTINA – GDP continued to drop at the beginning of the year

Macro Latam

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ARGENTINA – GDP continued to drop at the beginning of the year

junio 19, 2019

The decline was in line with expectations.

The decline in Argentina’s GDP in 1Q19 was in line with expectations. GDP fell by 5.8% YoY, after a contraction of 6.1% in the previous quarter (revised slightly from -6.2%). The 1Q19 decline in output was slightly above market expectations of 5.7% (according to the Bloomberg survey) and below the 6.8% contraction in the official monthly GDP proxy. On a sequential basis, GDP decreased by 0.2% quarter over quarter, leaving a negative statistical carryover of 2.5% for 2019.

Domestic demand posted another sharp decline in 1Q19, reflecting the ongoing adjustments of fiscal and external imbalances. Domestic demand (excluding inventories) fell by 12.0% yoy and 1.6% qoq. Gross fixed investment plummeted by 24.6% yoy, while private consumption retreated by 10.5% in the quarter. Public consumption declined by 0.2%. Imports tumbled by 24.6% yoy (also affected by a weaker ARS), while exports increased by a modest 1.7% yoy (with the impact of a good soy harvest to be reflected in 2Q19). On a sequential basis, private consumption declined by 2.4% qoq/saar, followed by fixed investment (-0.9%); public consumption increased by 2%. External demand had a positive contribution in the period, with imports down 1.7% and exports up 0.3%.

All sectors but Agriculture and Livestock deteriorated in 1Q19. Commercial activity fell by 12.6% yoy, followed by a 10.8% decline in manufacturing. Construction declined by 6.8%, while Transportation and Communication contracted by 4.0%. Financial Intermediation and Electricity, Gas & Water posted respective declines of 10.3% and 5.2%. Only the Agriculture and Livestock sectors posted gains, of 7.7%. 

Rising unemployment. The unemployment rate rose to 10.1% in 1Q19, from 9.1% in the same quarter of last year. The employment rate fell by 0.1 pp, to 42.3%, while the participation rate increased to 47% (from 46.7% in 1Q18). 

A challenging international scenario is likely to continue to pressure the economy this year.  We recently adjusted our GDP forecasts down to -1.4% (from -1.2%), due to our expectation of weaker global growth and despite an anticipated sequential recovery in 2Q19, led by a good harvest. We note that the risks are still tilted downward, given ongoing adjustments and uncertainties over the outcome of the upcoming presidential election.
 

Juan Carlos Barboza
Diego Ciongo



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