Itaú BBA - ARGENTINA – Back to recession in 3Q19

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ARGENTINA – Back to recession in 3Q19

Novembro 26, 2019

We revised our GDP forecast down to a contraction of 2.9% for this year (from -2.5% in our previous scenario).

Activity contracted in 3Q19, on a weaker ARS and reduced confidence following the primary elections. The EMAE (official monthly GDP proxy) decreased by 1.6% mom/sa and 2.1% yoy in September, beating our expectation of a 1.8% decline and the Bloomberg market consensus of a drop of 2.5% yoy. Activity consequently decelerated by 1.8% yoy in 3Q19 (+2.3% qoq/saar), down from 0.6% yoy in 2Q19. Activity has contracted by 2.3% yoy, year to date. 

Only primary activities grew in 3Q19. The Agriculture, Mining and Fishing sectors continued to expand, albeit at a slower pace of 8.0% yoy in 3Q19, due to the normalization of the harvest (34.9% in 2Q19). The remaining sectors continued to contract. Construction activity dropped by 4.7% yoy in the quarter ended in September (up from -5.6% in 2Q19); Manufacturing fell by 4.6% (vs. -6.7% in the previous quarter); and Services contracted by 2.2% yoy (from -3.0% in 2Q19), on lower real wages following the acceleration of inflation and the sharp ARS depreciation in August. 

Our seasonal adjustment shows a negative performance at the margin in 3Q19. Primary activities dropped by 2.4% qoq/saar (down from 6.3% in 2Q19), while Manufacturing declined by 4.7% qoq/saar (from -1.0% in 2Q19). The Construction sector posted a decline of 7.1% qoq/saar, following a 5.0% decrease in the quarter ended in June. Finally, the Service sector fell by 2.3%, after sliding 2.5% qoq/saar in 2Q19. 

We revised our GDP forecasts down to a contraction of 2.9% for this year and 2% for 2020 (from -2.5% and -1.1%, respectively, in our previous scenario). Activity continued to weaken following the presidential election in October, due to tighter capital controls as well as uncertainties regarding the debt restructuring and policy direction. 

Juan Carlos Barboza
Diego Ciongo

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