A substantial uptick in investment is unlikely while the current administration remains in power due to the government's history of interventionism. Nonetheless, declining inflation and import controls will support the country's private consumption and net exports balance, keeping growth in positive territory in 2015.
Pre-election spending and rising interest payments will see Argentina's primary and nominal budget deficits widen in 2015. The Argentine government will tap its foreign reserves and dollar-linked domestic bond markets in order to finance the budget shortfall, exacerbating the country's weak external account position.
The Argentine government will allow the peso to depreciate over the coming months, as a drop in foreign currency reserves keeps downwards pressure on the exchange rate. We expect a more substantial devaluation to occur after the October 2015 presidential election, as political pressure will preclude a major currency adjustment ahead of the poll.
Key Forecast Changes
We revised up our real GDP growth forecasts for the latter half of our 10-year forecast period on the back of improved private consumption as a new government's impact on the economy begins to be felt.
We changed our 2015 real GDP growth forecast to positive as we now expect declining inflationary pressures and import controls to support growth.
We altered out 2015 election expectations from a run-off between Daniel Scioli and Mauricio Macri to a second round electoral victory for Daniel Scioli, the likely candidate from the ruling Frente para la Victoria.
Key Risks To Outlook
The risks to our 2015 fiscal forecasts are weighted to the downside. Revenue growth could come in below our expectations as high inflation could erode the private sector's purchasing power, leading to a wider fiscal deficit. This would offset the fact that Argentine expenditures would be lower in the absence of interest payments as the government is unable to pay US and UK-law debt.
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, especially as the government keeps currency controls in place. Moreover, soy prices 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. This would put additional strain on Argentina's exchange rate, potentially forcing a currency devaluation in advance of the October elections.
|Real GDP growth, % y-o-y||2.9||0.4||0.1||1.5|
|Nominal GDP, USDbn||610.2||599.4||646.5||633.1|
|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||12.00|
|Budget balance, % of GDP||-1.9||-2.3||-4.1||-3.0|
|Current account balance, % of GDP||-0.8||-0.8||-0.2||0.4|