Argentina’s economic indicators in 2018 were the worst since 2002, when the country was gripped by crisis. Unsurprisingly, the Mauricio Macri administration is looking for stability in 2019.
Most economists doubt that the national economy will significantly rebound this year. However, their forecasts suggest activity may pick up slowly – albeit in a context of serious financial risk.
One economist suggested that gross domestic product (GDP) will drop against a rebound in activity. Another claimed the recession will persist throughout the year.
Despite this, the general sentiment among analysts is that the economy will see slight improvements in 2019. There is, however, concern about the possibility of political instability, with the country set to go to the polls for a general and presidential election in October.
THE SHADOW OF CFK
The possibility of Cristina Fernández de Kirchner running for the presidency is one such variable which markets are watching closely. A more stable international context would also favour the Argentine economy – especially if Brazil’s new government delivers on its promised boom.
“Our scenario is moderately optimistic: We foresee activity growing in every quarter; inflation dropping almost 20 points from the annual rate in 2018; the exchange rate depreciating at a rate slightly lower than inflation; and a primary fiscal deficit being achieved as the current accounts deficit drops noticeably,” said BBVA Research Argentina’s chief economist Marcos Del Bianco.
“The average quarterly rhythm for GDP growth will be 0.6 percent and that will not compensate for the carry-over from 2018 (-2.4 percent), meaning annual GDP will drop in 2019 around one percent. Inflation will drop in 2019 and will end the year at around 29 percent. Meanwhile, domestic demand will remain weak,” he added.
BBVA says this scenario has a 70 percent change of happening, over others.
For EcoGo’s Juan Ignacio Paolicchi, Argentina’s economic outlook is largely negative as “short-term profit-taking” means macroeconomic variables can “go any in any direction because as inflation decelerates, the exchange rate sharpens, and interest rates must fall as an overreaction to capital outflows.”
In any case, Paolicchi’s consultancy firm considers its estimates to be optimistic to neutral, forecasting an end to the recession but a drop in GDP because of the carry-over from last year.
LCG’s Guido Lorenzo predicted that activity could end at zero percent or “grow marginally,” while Camilo Tiscornia, from C&T Asesores, took a similar line to BBVA’s Del Bianco in suggesting that Argentina is moving toward “recovery but nothing major.”
Quizzed about the probability of alternative outcomes, Tiscornia said there was “a 50 percent scenario of slight recuperation, a 30 percent chance of negative growth, and a 20 percent chance of a slightly stronger recovery.” However, he agreed that if Fernández de Kirchner were to poll well in the run-up to the elections, any economic recovery could expect to suffer disruptions.
“Optimistic or pessimist alternatives depend on the relationship between the economy and politics,” agreed Matías Carugati from Management & Fit. “If the recovery is earlier in the year or stronger than expected, and the government’s approval rating increases or Cambiemos’ chances [of winning the next election] grow, then this will help the financial side of things to stabilise.”
Risks are evident for Management & Fit too. The firm does not rule out a negative election result for the government, nor a slump in the economy.
“If the recovery is delayed or does not impact upon the job market, then there will be less chance of Cambiemos’ re-election and that will have repercussions on the financial side of the depreciation,” it said.
Caraguti’s forecast remains neutral. “Activity will pick up in the second quarter and the job market will recover with some strength around midyear,” he said.
Gabriel Caamaño Gómez, from Ledesma, suggested that “in the best case scenario, it will be a year in which salaries regain what was lost [in 2018].” He said he saw “more chances of things going well than not going well.”
However, he warned that 2018 “was a disaster” as a result of the balance of payment crisis. “It may be the case that these good outcomes will be unimpressive,” he added.
For his part, Lorenzo added that wages could recover up to four percent in real terms though he didn’t foresee a complete recovery of last year’s losses.
SIXTY PESOS PER DOLLAR?
Most economists believe that if Fernández de Kirchner wins, or begins to poll well in the lead up to the election, then the economy could be disrupted by the markets’ outright rejection of her candidacy.
One economist close to the former president, Citizens United lawmaker Fernanda Vallejos, predicted last week that inflation in 2019 would reach 35 percent, while the peso could go as high as 60 pesos per greenback. In a report, Vallejos also forecast a loss in GDP of two percent, interest rates set at 50 percent, an unemployment rate of 13.5 percent and 37 percent of the population living in poverty.
Among the economists interviewed, Guido Lorenzo was the only one to address the peso-dollar exchange rate forecast head on, suggesting it was only possible in a negative context “in which politics begins to frighten the economy and the trend of dollarisation increases.”