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December 1, 2020

The Week at a Glance

Argentina: Recalculating – GDP Would Fall Less Than 11% in 2020

BY Miguel A. Kiguel, Alejandro Giacoia, Andrés Borenstein, Lorena Giorgio, Rafael Aguilar, Isaías Marini

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( 5 mins)

Economic activity grew 13.2% q/q in the third quarter, a better recovery than expected. September’s numbers were in line with our forecast, but INDEC made a significant backward revision of the pandemic months, worsening Q2 and improving Q3.

We do not expect September’s 1.9% monthly rise to continue in Q4. For October, our model estimates a much more moderate growth, around half a point, and November and December will not be much better. Considering this, we have improved the performance of 2020 by almost one point, from -11.6% to -10.7%. One of the effects of INDEC’s revisions is that this year will leave a carry-over effect of around 4 points for 2021. Thus, we consider that the 6% growth forecast is still valid. After Peru, Argentina would have the worst performance of the region if we put 2020 and 2021 together. Brazil would fall scarcely 4.5% this year to recover 3.3% in 2021, according to the CB’s latest survey.

What can alter our projection? On the side of supply, the economy will still be restricted until December, so any additional opening service wise will create growth. More movement of people, actual school attendance, corporate events, tourism, culture, and entertainment are all sectors that have a long way to go. On the other hand, climate expectations are not good, and the 2021 harvest could be worse than the 2020 one.

On the demand side, we foresee an adjustment in 2021. Pensions and wages will almost certainly lose purchasing power, the IFE (Emergency Family Income) will probably disappear alongside the ATP (Emergency Assistance Program to Labor and Production) that helped pay for corporate wages, or it will stay but in a diminished way. It is unclear how the rise in public utilities will impact, but it will clearly cause a shock in some homes and SMBs. It is quite likely that part of this adjustment will be countered with “electoral spending.” The Government is planning to increase public works with what will probably be low-productivity and high-employment small projects. Pothole and housing works are on the list of almost every mayor and governor that needs some visibility and a boost to a labor market that will still be down.

We do not foresee a recovery of investment apart from construction. In this sector, activity started to strongly rebound because the FX spread is favorable. The combination of plans such as “Ahora 12” for materials and the high level of informality help a “Phoenix” effect. But with the recent increases in taxes, the business climate is still not good despite some efforts of Minister Guzmán. In addition, there is a complicated institutional outlook in labor and judicial terms. The macro situation is not favorable either: we still consider that inflation will reach 57% in 2021.

Why are we not so optimistic regarding Q4? Short-term data are varied. On the positive side, we clearly have construction data. Cement shipments in October are already 18% higher than February’s. In the steel sector, the fall dropped to less than 8% compared to February. In other sectors, the data were less convincing. In October, the uprise of retail trade halted and the CAME index is 28% worse than in February. Food, which had been performing well through thick and thin, has ceased to grow. In October, both the poultry and beef industries dropped m/m and dairy production remained stable. As for hydrocarbons, October’s data were stable, but both gas and oil are over 10% below February’s data, seasonally adjusted. In the financial sector, which acts as a beacon on many occasions, the situation started to slow down. In October, loans grew in real terms, but almost exclusively due to the refinancing effect of credit cards. Commercial loans declined.

There are two other data which are not good for the activity level: exports have not been performing well and, on the other hand, the Argentine economy is quite short of supplies, something that can be seen both in consumption and in raw materials for production.

What’s Coming Up this Week…

  • On Wednesday 2 November’s tax revenues will be revealed. It is expected to be positive in real terms, due to the effect of deferred payments and increases in rates or new taxes. This year, revenues are growing over 2 points of GDP.
  • On Wednesday 2, another Treasury auction will take place with 4 bills and bonds on sale.
  • On December 4, SIPA’s complete data of the formal labor market will be released, including the public sector, independent workers, and formal workers.
  • On December 4, the CB will publish the REM (Market Expectations Survey) with estimations on inflation, interest rates, exchange rate, growth, and primary deficit for this year and the next one.

Argentina: Recalculating - GDP Would Fall Less Than 11% in 2020 1


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