Itaú BBA - ARGENTINA – GDP fell 2.2% in 2019, marking two years of recession

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ARGENTINA – GDP fell 2.2% in 2019, marking two years of recession

Março 25, 2020

Our GDP growth forecast for 2020 was recently revised down to -4.4% from -2.0%

Argentina’s GDP fell sharply in 4Q19. GDP fell by 1.1% YoY, after a contraction of 1.8% in the previous quarter (revised from -1.7%). The decline in output in 4Q19 was slightly above the 1.0% contraction of the official monthly GDP proxy. On a sequential basis, GDP decreased by 1.0% quarter over quarter, leaving a negative statistical carryover of -0.5% for 2020.

Domestic demand fell in 4Q19, due to a weakening ARS, the postponement of debt payments, and heightened uncertainties surrounding the policy direction following the defeat of the incumbent in the presidential election. Domestic demand (excluding inventories) fell by 3.3% yoy (-2.0% qoq/sa). Gross fixed investment dropped by 9.0% yoy, while private consumption retreated by 1.9% in the quarter. Public consumption also contracted, by 3.1% yoy, reflecting a reduction in federal primary expenditures as part of the fiscal consolidation efforts. Imports plummeted by 10.1% yoy, also affected by a weaker ARS and uncertainties. On the other hand, exports increased by 7.4% yoy due to a good wheat harvest and better car sales to Brazil. On a sequential basis, fixed investment declined by 6.4% qoq/sa, followed by public consumption (-3.1%) and private consumption (-0.8%). External demand had a positive contribution in the period, with imports down 4.8% qoq/sa and exports up 3.2% qoq/sa.

Primary activities decelerated markedly in 4Q19, while most of the remaining sectors continued to decline. Construction tumbled 8.3% yoy, while financial intermediation dropped by 8.6% yoy. Commercial activities fell by 2.6% yoy, followed by a 2.1% decline in manufacturing. Transportation and Communication remained unchanged against the same period 2018. Only the Agricultural & Livestock and Electricity, Gas & Water sectors showed an expansion (1.1% and 3.5% yoy, respectively).

Our GDP growth forecast for 2020 was recently revised down to -4.4% from -2.0%, due to the negative effects of the measures to control the outbreak of the COVID-19 pandemic. The negative supply and demand shock will likely lead to a severe contraction in 1H20, which will in turn have a negative impact on earnings and internal demand. Argentina is ill prepared to implement ambitious fiscal and monetary stimulus to mitigate the negative impact of the social distancing policies. Inflation is high, real interest rates are negative, and more fiscal consolidation is needed to carry out a successful debt restructuring. The odds of missing debt payments, due to scarce international reserves, has increased significantly. However, given our expectation of a normalization of output in 2H20, the statistical carryover for 2021 is likely to be significant. That said we still expect a weak cumulative performance of the economy in 2020-21.

Juan Carlos Barboza
Diego Ciongo

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