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GDP declines in Argentina

Março 26, 2020

We still expect a weak cumulative performance of the economy in 2020-21

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GDP fell 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 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. ** Full story here.

Day ahead: The INDEC will release the current account balance for 4Q19. The current account deficit fell to USD 1.1 billion in 3Q19 from USD 7.4 billion in 3Q18. We expect to see a new reduction in the current account deficit in 4Q19 as a consequence of a weaker peso and lower internal demand. Our forecast for 2019 is a deficit of 0.6% of GDP. Also at 9:00 AM, the trade balance for the second month of 2020 will be published. We forecast a surplus of USD 1.0 billion in February (up from USD 0.4 billion surplus registered in the same month of 2019) due to a weaker ARS and internal demand. If our forecast is correct, the trade surplus accumulated over the last 12 months would rise to USD 17.2 billion from USD 16.6 billion in January 2020.


The BCB has just published its quarterly inflation report. We will publish an in-depth analysis on the text later today.

According to FGV’s monthly survey, construction confidence receded 2.0 p.p. in March (to 90.8). The breakdown shows that the expectations component declined 3.5 p.p. (to 95.5), while the current conditions component dropped 0.4 p.p. (to 86.3). The survey was conducted between March 2 and 23, so it just considers the beginning of the coronavirus outbreak in Brazil. In all, the decline registered on construction confidence was milder than those observed in the other sectors released so far. Industrial (preview), consumer and retail confidences contracted 3.2 p.p. 7.6 and 11.7 respectively. In our view, these figures start to reflect the contraction that will soon materialize, and are set to deteriorate further.

March’s IPCA-15 inflation came in at 0.02% mom, slightly below our call (0.04%) and the market’s (0.06%). The reading was the lowest for the month of March since 1994. In year-over-year terms, inflation receded to 3.67% (our call: 3.69%), from 4.21% in the previous month. Looking at the breakdown, the transportation component (-0.8% mom in March) posted the major negative contribution to the monthly headline (-17 bps), driven by declines in airline tickets (-16.9% mom, the third consecutive deflation) and fuel prices (-1.19% mom in March, after a +0.49% print in February). It’s worth mentioning that this item may continue under deflationary pressure in the coming months, following the fuel price reductions in refineries, recently announced by Petrobras. On the opposite side, the health & personal care component posted the major upward contribution (+0.84% mom, 11 bps contribution to the monthly headline). Compared to our call, the services component surprised to the downside (-6.8 bps contribution than our call), mainly driven by lower-than-expected price changes in airline tickets and tourist packages. Going forward, these two items will be strongly impacted by the Covid-19 lockdown effects and should be closely monitored. All in all, the latest inflation prints continue showing a benign path for consumer prices. The March's IPCA-15 was the first in a sequence of very low inflation readings (close to zero and even negative) in the coming months. In our view, the impact of the current shock is disinflationary in the short term. Some factors stand out in that sense, in particular the sharp slide in oil prices in recent weeks and the impact of broadening personal mobility restrictions (via milder price adjustments/pass-through). ** Full story here.

Service sector real revenue grew 0.6% mom/sa in January (our call: 0.7%).  The advance was widespread, with negative figures restricted to the IT and communications services (-0.9% mom/sa). The positive surprise came from “Transportation, auxiliary transportation and courier services sector”, which increased 2.8% mom/sa, after dropping 2.1% mom/sa in the previous month. It’s worth mentioning that these figures are related to January, before the strong negative impacts from the Coronavirus pandemic on economic activity.

The current account posted a USD 3.9 billion deficit in February 2020, which was wider than our forecast and market estimates (both at USD -3.3 billion). The income account, and interest payments in particular, represented the main difference vs. our forecast. The current account deficit over 12 months amounted to USD 52.9 billion, or 2.9% of GDP. In the coming months, the current account deficit is expected to recede in the face of slower economic activity and a weaker exchange rate. Items such as international travel, transportation and profits and dividends will probably be affected the most. The impact on the trade balance is still uncertain as both imports and exports are expected to decline amid shrinking global trade. For the next years, we expect current account deficit to hover between 2.5% and 3.0% of GDP. Even at a higher level, the current account deficit will still be comfortably financed by foreign direct investment. ** Full story here.

Over the last days, the Brazilian government announced a series of stimulus measures, as the coronavirus impact escalates domestically and worldwide. The measures that impact fiscal accounts encompass three branches of action (totaling BRL 81 bn or 1.1% of GDP, according to our estimates): (i) extraordinary expenses; (ii) revenue exemption; (iii) support to States & Municipalities. There are also measures that have no fiscal impact (such as funds reallocation, deferrals, among others), that amount BRL 118 billion, or 1.5% of GDP. The discussions of such measures are evolving on a daily basis and their content/potential impacts may increase going forward. All proposals are expected to be addressed through provisional measures or simple law bills. 

Additional measures have already been taken and/or are being discussed by other public entities. On March 16, the National Monetary Committee approved two measures to aid the economy against the negative effects of the coronavirus. The first facilitates the renegotiation of credit operations for companies and families with good credit score. The second expands the utilization of capital capacity of the banking system by increasing the difference between the effective capital and the minimum capital buffer required during the period of one year, which grants more room and security for banks to maintain or amplify their credit plans. On March 19, the BCB and the Fed established a temporary dollar liquidity arrangement through swap lines. This measure, similar to what the Fed did back in 2008, aims to deal with the high volatility caused by the coronavirus pandemic. On March-23, the BCB announced a comprehensive set of measures to offer liquidity to the financial system. These may amount to 16.7% of GDP, compared to 3.5% provided in the 2008 crisis. According to news reports, the Lower House is planning to vote a constitutional amendment (so called the “war budget”) in order to allow simplified procurement rules for government acquisitions to fight the Covid-19, and separate the expenses aimed to mitigating the outbreak’s impact from the year’s fiscal target.

Coronavirus update: the latest official information from the Ministry of Health is that Brazil has 2433 (from 2201 yesterday) confirmed coronavirus cases, with 57 (from 46 yesterday) confirmed deaths. (find our weekly monitor for Covid-19 here)

Day Ahead: January’s IBC-Br activity index will be released at 9:00 (SP time). We forecast a 0,5% mom/sa increase.


During the month of February, both industrial and retail confidence remained upbeat in Colombia, a development that will not persist into March as the country starts a 19-day lockdown period amid the coronavirus outbreak. According to think-tank Fedesarrollo, industrial confidence came in at 9.8% (0 = neutral), up from 5.1% one year earlier, but showing some moderation from January (12.2%), likely in part to the start of oil price decline, growing external headwinds and COP weakening. Compared to last year, industry holds a far less downbeat evaluation of current orders (-5.3% vs. -22.8%) while inventories fell. On the other hand, expectations for production in the upcoming quarter worsened to 32.7% from 42.2% one year earlier, an early indication that sentiment is set to deteriorate ahead. The survey also shows a notable decline in the evaluation of economic and political conditions for investment. Meanwhile, retail confidence stayed elevated at 28.3%, mildly down from the 31.8% in February 2019 (32.3% in January). The decline from last year was explained by a less optimistic outlook for the economic situation in the upcoming semester (to 37.6% from 46.0%), along with rising inventory despite the still dynamic retail activity. Amid the rapid deterioration of the global economy and the expected halt to domestic activity, we see confidence waning ahead and activity contracting 0.4% this year (3.3% in 2019). 


Retails sales expanded 2.7% year-over-year in January, above our forecast (2.4%) and slightly below market expectations of 2.8%. According to calendar-adjusted data, reported by the statistics institute (INEGI), retail sales grew at the same pace, taking the quarterly annual growth rate to 2.7% in January (from 1.9% in December). We expect private consumption to deteriorate sharply in the first half of 2020, associated the impact of the coronavirus outbreak, recovering sharply in the second half of the year. ** Full story here.

Day Ahead: The national statistics institute (INEGI) will publish January’s monthly GDP proxy (IGAE), which we estimate fell by 0.3% yoy. INEGI will also announce February’s unemployment rate, which we expect to print at 3.6%.

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