We expect a substantial uptick in investment in the coming quarters following a devaluation and liberalisation of Argentina's external accounts. Although real GDP will contract in 2016 as private consumption declines in response to falling real purchasing power, Argentina will enter a period of robust growth as foreign investment flows into the country.
The government of President Mauricio Macri will reduce the country's budget deficit in the coming years by reducing government subsidies on electricity. This will temper inflationary pressures as the government can move away from printing new pesos to finance its substantial deficit. Nonetheless, subsidy reduction will be gradual in order to limit the shock to consumers' disposable incomes.
The largest risk to the Argentine economy 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 could block many of Macri's proposed reforms.
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||-2.6||2.4||-0.6||3.1|
|Nominal GDP, USDbn||567.4||630.3||523.4||656.5|
|Consumer price inflation, % y-o-y, eop||12.7||26.9||30.0||12.0|
|Exchange rate ARS/USD, eop||8.50||12.90||13.80||12.50|
|Budget balance, % of GDP||-2.4||-3.9||-5.3||-4.8|
|Current account balance, % of GDP||-1.4||-2.5||-0.8||-0.5|
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