Itaú BBA - Activity declines sharply in Argentina, reflecting the beginning of the lockdown

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Activity declines sharply in Argentina, reflecting the beginning of the lockdown

Maio 21, 2020

We forecast a GDP contraction of 8.3% for 2020

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Economic activity fell sharply in March, affected by the COVID-19 outbreak and the subsequent lockdown. The EMAE (official monthly GDP proxy) fell by 11.5% yoy, worse than both the market consensus (-9.0%) and our call (-7.9%). The construction downturn deepened to -27% yoy in 1Q20 from -8.3% yoy in 4Q19. Manufacturing fell by 6.5% in the same period (vs. -2.1% in 4Q19). Meanwhile, services contracted by 5.5% yoy in 1Q20 (vs. -0.8% in the previous quarter). Finally, Agriculture, Mining and Fishing activity retreated by 5.0% yoy after growing by 0.6% in 4Q19. Coincident indicators are pointing to an even sharper contraction in 2Q20. We expect a severe contraction due to the negative effects of the measures taken to control the outbreak of COVID-19, followed by some output normalization in the second half of the year as the lockdowns are lifted. As a result, we forecast a GDP contraction of 8.3% for 2020.


According to FGV’s monthly survey, industrial confidence (preview) advanced 2.4 p.p. in May (to 60.6), after declining 39.3 p.p. in April. This result was better than that from the special survey conducted by FGV last week, where the industrial confidence pointed to a 1.2 drop. The breakdown shows that this positive result was driven by the expectations component, which increased 4.6 p.p. (to 54.2) after plummeting 46.6 p.p. last month , while the current conditions component ticked-up by 0.3, to 67.7, after registering a 31.4 loss in April.  The survey was conducted between May 1st and May 19th, with 790 companies. The final industrial survey will be released next Wednesday (May 27th). 

Itaú Daily Activity Index: Our Daily Activity Index has increased 0.6 p.p. in the last available day (Monday, May 18th), to 69.8, while the 7-day moving average dropped 0.4p.p., to 74.2. The index is down 30% when comparing the latest data available with the first half of March. See our report here.

COVID-19 update: the latest official information from the Ministry of Health is that Brazil has 291,579 confirmed cases (up by 19,951 vs 17,408 from the day before), with 18,860 confirmed deaths (up by 889 vs 1,179 from the day before), which implies a 6.5% mortality rate. There are now 116,683 recovered cases (up by 9,889 vs 6,335). The ICU occupation is still high: in São Paulo, for instance, the rate stands at 88% in the capital (stable) and 72% in the state (from 71%).


Day Ahead: The statistics institute (INEI) will announce GDP growth for 1Q20, which we estimate at -3.5% yoy. We expect the demand-side breakdown of GDP to show a broad-based deterioration, associated to distancing measures implemented since March to contain the outbreak.


Day Ahead: The Central Bank will announce the decision of its monetary policy meeting. The authorities have cut the reference rate by a cumulative 275 bps between March and April, to 1.25%, to boost credit and mitigate the impact of the lockdown on the economy. In its latest meeting, the BCP cited the low inflation environment and the weak internal demand to justify the size of the rate cut. We expect the BCP to keep its policy rate at 1.25%.

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