Argentina Economic Outlook. Third quarter 2019

We maintain our GDP forecast fall of 1.2% in 2019, which will grow quarterly form 2Q-19 due to the recovery of agricultural campaign and the reduction of FX market tensions. By 2020, the economy will have processed the tensions caused by the electoral uncertainty and will grow by 2.5% as private domestic demand recovers.

Key points

• Key points:
• Global growth will stabilize at lower levels in relation to previous years. The additional measures to stimulate economic activity, especially from the monetary policy, will compensate the effects of greater trade conflicts
• The polarization of the political scene is increasing. The announcements of moderate candidates in the two tickets with "real" chances of winning the elections were well received by the markets. Our baseline scenario assumes that the current economic policies will continue after the elections
• The FX market stability achieved with the new FX reference zone scheme and the maintenance of monetary tightening moderated inflation expectations. We maintain the inflation rate forecast of 40% for 2019 and 30% for 2020. The exchange rate for December 2019 will be at ARS/USD 48, reaching ARS/USD 60 by the end of 2020 which will prevent an excessive loss of competitiveness
• There is evidence of a strong adjustment in the current account that will go from -5.1% of GDP (2018) to -2.3% of GDP this year. The trade surplus and a lower deficit in Tourism will be offset by the impact of interest payments (4% of GDP) due to higher indebtedness. The situation will remain almost unchanged in 2020. The EU-Mercosur agreement is a great opportunity to boost international trade
• This year the primary fiscal deficit will reach 0.5% of GDP including adjustors for social and capital spending, as agreed in the Stand-by signed with the IMF. By 2020 we expect a primary surplus of 1% of GDP, but to reach this target will imply a major effort taking into account the recent evolution of tax collection

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