_________________________________________________________________________________________________________________________________________________________ Country Report Argentina Generated on March 6th 2018 Economist Intelligence Unit 20 Cabot Square London E14 4QW United Kingdom _________________________________________________________________________________________________________________________________________________________ The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York The Economist Intelligence Unit The Economist Intelligence Unit 20 Cabot Square The Economist Group London 750 Third Avenue E14 4QW 5th Floor United Kingdom New York, NY 10017, US Tel: +44 (0) 20 7576 8181 Tel: +1 212 541 0500 Fax: +44 (0) 20 7576 8476 Fax: +1 212 586 0248 E-mail: [email protected] E-mail: [email protected] Hong Kong Geneva The Economist Intelligence Unit The Economist Intelligence Unit 1301 Cityplaza Four Rue de l’Athénée 32 12 Taikoo Wan Road 1206 Geneva Taikoo Shing Switzerland Hong Kong Tel: +852 2585 3888 Tel: +41 22 566 24 70 Fax: +852 2802 7638 Fax: +41 22 346 93 47 E-mail: [email protected] E-mail: [email protected] This report can be accessed electronically as soon as it is published by visiting store.eiu.com or by contacting a local sales representative. The whole report may be viewed in PDF format, or can be navigated section-by-section by using the HTML links. In addition, the full archive of previous reports can be accessed in HTML or PDF format, and our search engine can be used to find content of interest quickly. Our automatic alerting service will send a notification via e-mail when new reports become available. Copyright © 2018 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 2047-4237 Symbols for tables "0 or 0.0" means nil or negligible;"n/a" means not available; "-" means not applicable Argentina 1 Argentina Summary 2 Briefing sheet Outlook for 2018-22 4 Political stability 5 Election watch 5 International relations 6 Policy trends 6 Fiscal policy 7 Monetary policy 7 International assumptions 8 Economic growth 8 Inflation 9 Exchange rates 9 External sector 9 Forecast summary 10 Quarterly forecasts Data and charts 11 Annual data and forecast 12 Quarterly data 13 Monthly data 14 Annual trends charts 15 Quarterly trends charts 16 Monthly trends charts 17 Comparative economic indicators Summary 17 Basic data 19 Political structure Recent analysis Politics 22 Forecast updates 23 Analysis Economy 29 Forecast updates 32 Analysis Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018 Argentina 2 Briefing sheet Editor: Fiona Mackie Forecast Closing Date: January 31, 2018 Political and economic outlook The president, Mauricio Macri of the centre-right Propuesta Republicana party, made political gains at mid-term legislative elections in October and will maintain a programme of policy adjustments to reduce distortions and return the economy to sustainable growth. The next presidential election is due in October 2019. Based on The Economist Intelligence Unit's assumption of moderate GDP growth and a reduction in inflation, we currently expect Mr Macri to win a second four-year term. Macroeconomic adjustments will continue in the coming years, but there will also be an increased emphasis on structural reforms intended to raise productivity. There has been progress on tax and pension reform; labour market reforms will prove trickier. As the economy continues to recover, GDP growth will accelerate to 3.4% in 2018. As the initial momentum from the recovery faces, growth will dip below 3% in 2019-20, before accelerating again on the assumption of successful implementation of structural reforms. After a post-devaluation spike in inflation in 2016, disinflation is expected in 2018-22 on the back of fiscal tightening and increased domestic output. The introduction of an inflation targeting framework in 2017 will support greater price stability. The peso will continue to depreciate in nominal terms in 2018-22. Peso weakening will be limited by large capital inflows. There is a persistent risk of currency volatility as the central bank gradually reduces interest rates. A moderate current-account deficit will be comfortably covered by inflows of portfolio capital and foreign direct investment, directed towards infrastructure and agriculture. Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018 Argentina 3 Key indicators 2017a 2018b 2019b 2020b 2021b 2022b Real GDP growth (%) 2.8 3.4 2.8 2.8 3.3 3.4 Consumer price inflation (av; %) 26.5c 20.9 12.3 8.7 6.3 5.2 Government balance (% of GDP) -5.8 -5.3 -5.2 -4.5 -3.2 -2.4 Current-account balance (% of GDP) -4.5 -4.3 -4.4 -4.4 -4.3 -4.1 Money market rate (av; %) 26.3c 23.3 14.9 9.4 8.4 7.3 Key changes since January 12th We have revised upward our forecasts for producer price inflation on the back of recent peso depreciation. On the assumption of limited pass-through to consumer prices, we have made only modest adjustments to our forecasts for consumer price inflation. Recently released full-year fiscal data was in line with our expectations. Although revenue was slightly below our projections, expenditure was also slightly lower than expected; our forecast for a further narrowing of the deficit in 2018 and beyond remains unchanged. We have made a further revision to our current account forecast, to show a wider than expected deficit in 2017 (of an estimated 4.5% of GDP). We assume that the deficit will gradually narrow from this level but remain substantial. The month ahead February 15th—Consumer price index, January: Price pressures are expected to remain substantial in the light of recent currency depreciation, although inflation is likely to be lower than the December regulated price spike. February 27th—Monthly economic activity index, December 2017: The monthly economic activity index, which is a rough proxy for the national accounts data, showed solid growth in January-November; our expectation is for further moderate growth in December. TBC—Talks on labour market reform: the government is attempting to garner support for a labour market reform from unions and opposition parties before presenting a bill to Congress in March. Progress in these talks in the next month would help to prepare the ground for an easier passage of the bill through Congress. Major risks to our forecast Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018 Argentina 4 Scenarios, Q4 2017 Probability Impact Intensity Very The authorities fail to rein in the fiscal deficit Moderate 15 high Deterioration of provincial finances forces further ad hoc revenue-raising Moderate High 12 measures Reversals in Congress or in the courts prevent the development of stable Moderate High 12 contract rights The legislature seeks to limit presidential power to rule by decree, creating Moderate High 12 the possibility of legislative gridlock and a stalled reform agenda Note: Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential developments that might substantially change the business operating environment over the coming two years. Risk intensity is a product of probability and impact, on a 25-point scale. Source: The Economist Intelligence Unit. Outlook for 2018-22 Political stability The president, Mauricio Macri, will press on in the second half of his four-year term with economic adjustment measures designed to raise the long term growth rate and reduce the economy's vulnerability to boom-and-bust cycles. He will be bolstered in this effort by the convincing victory of his ruling Cambiemos coalition in the mid-term legislative election in October 2017. Cambiemos gained seats in both the Senate (the upper house) and the Chamber of Deputies (the lower house). Meanwhile, the Partido Justicialista (PJ, the Peronist party), which dominated politics for decades before Mr Macri's election victory in 2015, is struggling to regroup from that defeat and is beset by internal divisions. The party is currently split between a left-wing, populist faction under the leadership of the former president, Cristina Fernández de Kirchner (2007-15), and a centrist faction that as yet has no single, clear leader. The good mid-term result notwithstanding, Mr Macri will continue to lack a congressional majority, and his adminis tration will have to negotiate support for its legislative agenda on an ad hoc basis with various factions of the PJ. Assuming that the economy continues to strengthen and helps the government to maintain its popularity, this support is likely to be forthcoming, at least until politicians begin to gear up for the October 2019 presidential race, at which point obstructionism is likely to increase. In the interim, mutual interest will ensure some continuing co operation between Cambiemos and moderate Peronists. The president will also retain influence with powerful provincial governors who largely control the agenda in the Senate, but who are in turn reliant on central government transfers, some of which are discretionary.