Itaú BBA - ARGENTINA – Output recovery continued in February

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ARGENTINA – Output recovery continued in February

abril 30, 2019

The risks to our base-case economic scenario for 2019 are high.

Activity posted another sequential gain in February. The EMAE (official monthly GDP proxy) posted a third consecutive increase, expanding by 0.2% mom/sa relative to January and taking quarter-over-quarter growth into positive territory (1.5% annualized, from -4.8% in the quarter ended in January). In year-over-year terms, activity still fell by 4.8% in February, slightly better than market consensus expectations of a 5.0% yoy decline, according to Bloomberg.

Our seasonal adjustment indicates that all sectors posted a sequential recovery in the quarter ended in February. Primary activities (agriculture, fishing and mining) grew 5.4% QoQ/saar, from 1.5% in January. Construction fell by just 0.5% QoQ/saar, marking a significant improvement from the -17.6% QoQ/saar registered in January. Services dropped by 0.7% QoQ/saar, also up from a 3.9% decline in the quarter ended in January. Finally, manufacturing decreased by 1.5% QoQ/saar (from -14.9% in the previous month).

Growth across sectors also improved on a year-over-year basis. The primary sector grew 3.2% yoy in the quarter ended in February (from 2.3% in January), driven by a good harvest. Manufacturing fell by 11.1%, up from 12.9% in the previous month. Construction declined by 7.7% (from -10.6% in January), while services contracted by 4.1% yoy (just slightly up from 4.2% yoy in the quarter ended in January), likely still affected by the decline in real wages and high interest rates. 

We forecast a GDP contraction of 1.2% in 2019. The recent performance is consistent with some stabilization of the economy. While we expect activity to retreat in March, due to bouts of financial instability, growth (adjusted by seasonality) will likely be positive in 1Q19. The risks to our base-case economic scenario for 2019 are high.  The perception of reversal of economic policies, fueled by recent electoral polls, could trigger further exchange-rate depreciation which in turn will keep inflation high, confidence low and prevent interest rates from falling with negative consequences for activity.

Juan Carlos Barboza
Diego Ciongo

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