Itaú BBA - ARGENTINA – Mild activity growth in 2Q19

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ARGENTINA – Mild activity growth in 2Q19

agosto 22, 2019

There are clear downside risks to our -1.4% GDP growth forecast for this year

Activity grew in 2Q19, after four consecutive quarters of contraction, but remained subdued. The EMAE (official monthly GDP proxy) remained flat on a year-over-year basis in June, posting a 0.4% yoy gain in 2Q19 (-1.91% adjusted for calendar effects). Adjusted for seasonality and working days, output decreased by 1.4% QoQ/saar, down from -0.7% in the previous quarter. Activity fell by 2.6% in 1H19, relative to the same period in 2018. The statistical carryover for the remainder of the year stands at -2.8%.

Primary activities improved markedly in 2Q19. The Agriculture, Mining and Fishing sectors grew 33.4% yoy in 2Q19 (up from 4.6% in the previous quarter), recovering fully from the decline registered one year ago when a severe drought hit the harvest. The rest of the sectors continued to contract, albeit at a slower pace. Manufacturing fell by 7.0% in the period, compared with a drop of 10.8% in 1Q19. Construction declined by 5.5% yoy (from -6.8% in 1Q19). Services, which continued to be affected by the decline in the real income of households and high interest rates, contracted by 3.4% yoy (from -4.0% in the quarter ended in March). 

There are clear downside risks to our -1.4% GDP growth forecast for this year. The outcome of the primaries for the presidential election in October fueled fears of a sovereign default, which hurt Argentine asset prices and the currency. Tighter monetary policy to stabilize the exchange rate market, lower real wages and heightened uncertainties will likely lead to a further contraction of internal demand. 

Juan Carlos Barboza
Diego Ciongo


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