A substantial uptick in investment is likely following a devaluation and liberalisation of Argentina's external accounts in 2016. Nonetheless, this will likely not begin until the latter half of 2016, leading to a contraction in real GDP as private consumption declines with real purchasing power. Thereafter, Argentina will enter a period of robust growth as foreign investment flows into the country.
The government of president-elect Mauricio Macri will move to substantially reduce the country's budget deficit in the coming years by reducing government subsidies on electricity. This will serve to temper inflationary pressures as the government can move away from printing new pesos to finance its substantial deficit. Nonetheless, subsidy reduction will be gradual to limit the shock to consumers' disposable incomes.
A deal to end Argentina's ongoing technical default will be made by the end of H116 as the Macri government will prioritise the resolution. Without an agreement, the government's access to foreign currency is extremely limited, which would limit the liberalisation of the country's external accounts. Because of this, we view a deal with holdouts as the starting point of potential reform measures.
Key Forecast Changes
We have revised our real GDP growth forecast for 2016 from growth of 2.5% to a decline of 0.4% as given the changes to policy presented by a Macri-led government.
Key Risks To Outlook
The largest risk to our forecasts stem from potential pushback from the Frente para la Victoria in Argentina's legislature. The party maintains a majority of seats in the country's senate, and any deal with holdout investors to end Argentina's ongoing technical default is legally required to pass through the legislature. A deal would be the starting point for reforms to external accounts and without one, Argentina would risk a deeper recession in 2016.
The risks to our balance of payments forecasts for Argentina are weighted to the downside. Weak economic growth in key trade partners such as Brazil could weigh on Argentine export growth more than our forecasts currently anticipate. Moreover, soy revenues could disappoint on the back of unfavourable weather across the Americas region, dampening agricultural exports and hurting the current account balance. In addition, should the Argentine government revert back to anti-business policies, financial account outflows would likely put additional downward pressure on foreign reserves.
|f=BMI forecast; Source: INDEC, BCRA, BMI|
|Real GDP growth, % y-o-y||2.9||0.4||0.7||-0.4|
|Nominal GDP, USDbn||610.2||599.4||629.5||554.1|
|Consumer price inflation, % y-o-y, eop||10.9||12.7||18.0||15.0|
|Exchange rate ARS/USD, eop||6.52||8.47||9.55||12.75|
|Budget balance, % of GDP||-1.9||-2.3||-7.1||-5.5|
|Current account balance, % of GDP||-0.8||-0.8||-0.3||0.9|
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