Itaú BBA - ARGENTINA – Output dipped further than expected in March

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ARGENTINA – Output dipped further than expected in March

mayo 22, 2019

The risk to our base-case economic scenario for 2019 remains tilted to the downside

Activity posted a sequential loss in March. The EMAE (official monthly GDP proxy) posted a 1.3% mom/sa decline from February. Following the downward revision of the first two months of the year, quarter-over-quarter growth remained in negative territory (-0.8% annualized, unchanged from the quarter ended in February). In year-over-year terms, activity fell by 6.8% in March, below market expectations (according to Bloomberg) and our expectations (-6% and -5.8% yoy, respectively).

Growth across sectors was negative on a year-over-year basis, except in primary activities. Agriculture, mining and fishing sectors grew 5.3% yoy in 1Q19 (up from 1.7% in 4Q18), driven by normalization of the soy harvest. Manufacturing fell 10.6%, slightly above the -11.9% print registered in the previous quarter. Construction declined by 5.9% (from -9.5% in 4Q18), while services contracted by 4.2% yoy (down from -3.8% yoy in the quarter ended in December), likely still suffering from the decline in real wages and high interest rates. 

Our seasonal adjustment indicates mixed results in the first quarter of the year. Primary activities (agriculture, fishing and mining) climbed 10.6% qoq/saar, similar to the 10.4% posted in 4Q18. Construction also grew by 15.0% qoq/saar, marking a significant recovery from the -20.2% qoq/saar registered in December. Services dropped by 0.1% qoq/saar, which was an improvement from the 5.7% decline in 4Q18. Finally, manufacturing increased by a modest 1.9% qoq/saar (from -18.1% in the previous quarter).

We forecast GDP contraction of 1.2% in 2019. Recent performance shows the fragility of output stabilization insinuated in the early months of 2019. We expect the economy to grow on a sequential basis in 2Q19, boosted by normalization of agricultural output, but the risk to our base-case economic scenario for the year remains tilted to the downside, due to continued uncertainty in the political scenario and the leadup to the October presidential election, higher interest rates and ongoing fiscal tightening.

Juan Carlos Barboza
Diego Ciongo

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