Argentina Retail Report Q1 2013

The Argentine Retail Report examines the long-term potential of the local consumer market, but flagsshort-term concerns about the impact on Argentina's economic outlook of the prospect of a sizeablecurrency devaluation in 2013.

The report examines how best to maximise returns in the Argentine retail market while minimisinginvestment risk, and also explores the impact of deteriorating relations between Argentina and its keytrade partners on the Argentine consumer and on the ability of producers and exporters to realise returnsin the short term.

The report also analyses the growth and risk management strategies being employed by the leadingplayers in the Argentine retail sector, as they seek to maximise the growth opportunities offered by thelocal market.

Argentine per-capita consumer spending is forecast to increase by 21% between 2013 and 2016,compared with a regional growth average of 17%. The country comes last in BMI's Latin AmericanRetail Risk/Reward Ratings, although it performs slightly better for Risk.

Among all retail categories, consumer electronics will be the outperformer through to 2016 in growthterms, with sales forecast to increase by 18% between 2013 and 2016 - from US$6.14bn to US$7.25bn.PC penetration is fairly low at about 25%, and this is expected to climb to more than 30% by 2016,creating opportunities for vendors.

The Conectar Igualdad programme to provide 3mn PCs to public schools nationwide should provideopportunities for manufacturers and retailers alike.

Over the last quarter, BMI has revised the following forecasts and views:

BMI has revised down its 2012 real GDP growth estimate from 4.0% to 2.8%. Additionally, wenow believe that persistent economic imbalances in the Argentine economy will lead to a sharpreduction in economic growth and a significant devaluation of the peso in 2013. We are revisingdown our 2013 real GDP growth forecast from 3.7% to 0.9%, after which point we believe theeffects of a 25% devaluation in 2013 will pave the way for stronger growth for the remainder ofthe decade.

BMI has revised down its 2012 private consumption growth forecast from 4.0% to 3.5%. We seethe impact of a currency devaluation hitting real private consumption growth particularly hard in2013. We forecast that consumer price inflation will average 25% in 2013, and unemploymentwill end the year at 8.5%, which will see private consumption growth remain flat in real terms.

Latest data show that retail sales in Argentina rose by more than expected in September 2012, toa seasonally adjusted 27.5%, from a revised 31.9% in August. Analysts had expected aSeptember increase of 24.2%.