Recently published research from Business Monitor International, "Argentina Business Forecast Report Q4 2013", is now available at Fast Market Research
Boston, MA -- (SBWIRE) -- 10/30/2013 -- Data indicate that Argentina saw economic activity pick up more than expected in the second quarter of the year, raising the likelihood that we will revise up our 2013 real GDP growth forecast of 1.8% once we see data from Q213. That said, we believe over the longer term there are significant downside risks to Argentina's growth picture, as long-building imbalances both in the domestic economy and in the external accounts persist.
We forecast that Argentina's balance of payments picture over the next several years will be weaker than during much of the past decade, with the current account balance hovering around 0.0% of GDP over the next several years. This current account forecast assumes continued weakening in both goods and services exports, the result of lost competitiveness from high domestic inflation, and marks an abrupt narrowing from a current account surplus that averaged 2.4% of GDP over the past decade.
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Expenditure and revenue growth trends in the first six months of 2013, along with our expectations of strong spending in advance of the October midterm election, lead us to believe that Argentina's primary and nominal fiscal deficits will be wider than we originally forecast. We have revised these forecasts for 2013 and 2014 to reflect greater deterioration in the country's fiscal accounts, and highlight that additional downward revisions are possible.
Major Forecast Changes
While we maintain our view for currency weakness, we are revising slightly both our 2013 and 2014 currency forecasts, as well as our view on how the Argentine government will manage the peso. Earlier, we had expected substantial downward pressure on reserves to force the government into a large, one-off devaluation, but the Argentine government has instead dramatically increased the rate at which the crawling peg depreciates. We now believe continued depreciation is more likely than a one-off devaluation, and forecast and end-2013 exchange rate of ARS6.000/US$.
Key Risk To Outlook
Risk To Real GDP Forecast: We believe that we may revise up our 2013 real GDP forecast due to stronger-than-expected growth in Q213, but many of the long-standing imbalances in the Argentine economy remain, including very high consumer price inflation, expansionary monetary and fiscal policies, and unstable external accounts. As such, we believe there is the risk of a sharp slowdown in growth over the medium term.
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