2012-11-14 22:02:55 - Argentina Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com

The build-up of vast external economic imbalances in Argentina suggests that the balance of payments will need to undergo a correction, which we expect to take shape in the form of a sizable currency devaluation in 2013. We believe Argentina will continue to manipulate foreign trade in an effort to mitigate persistent imbalances within its economy. As such, we have lowered our 2012 goods trade forecast and expect a current account deficit of US$523mn this year.

The first half of 2012 shows a slowing in revenue growth that we believe will continue throughout the back half of the year, leading to Argentina´s first primary budget deficit in more than a decade and a nominal budget deficit of 1.8% of GDP. Popular

 

 

opinion has turned against Argentine President Cristina Fernández de Kirchner, her government and their policies, leading us to believe that her Peronist-led coalition will lose seats in the 2013 legislative election. The magnitude of the loss will depend on just how effectively the opposition can blame Fernández for a deteriorating economy.

Major Forecast Changes

We believe the Argentine government´s increasingly aggressive interventionist policies will result in more high inflation and low growth, causing us to revise down our 2012 real GDP growth forecast from 4.0% to 3.0% and our 2013 real GDP growth forecast from 3.7% to 0.9%. We have lowered our 2013 average exchange rate forecast to ARS5.5500/US$ due to our expectation of a sizable devaluation in the peso next year.

Key Risks To Outlook

Upside Risk To 2013 Peso Devaluation: It is difficult to predict the exact timing of what we admit is a political decision as much as an economic one, and higher-than-expected grains prices could help the Argentine government to delay addressing its largely overvalued official exchange rate.

Upside Risks To 2013 Real GDP Forecast: As mentioned above, a stronger-than-expected grains harvest would give the Argentine government a larger cushion of foreign currency reserves. This could lead to a delay in any resolution of the imbalances in the Argentine economy, pushing back the sharp economic slowdown that we expect to occur next year.

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