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Argentina Country Risk Report 2016

Argentina Country Risk Report 2016

Core Views A substantial uptick in investment is likely following a devaluation and liberalisation of Argentina’s external accounts. Nonetheless, this is mot likely to begin until H216, leading to a contraction in real GDP as private consumption declines with real purchasing power. This will ensure the Argentine economy contracts this year. Thereafter, Argentina will enter a period of robust growth as foreign investment flows into the country. The government of president-elect Mauricio Macri will move to substantially reduce the country’s budget deficit in te coming years by reducing government subsidies on electricity. This will serve to temper inflationary pressures as the government can move away from printing new pesos to finance its substantial deficit. Nonetheless, subsidy reduction will be gradual to limit the shock to consumers’ disposable incomes.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Sharp Adjustments Point To Rising Investment In H216
Argentine real GDP growth will accelerate starting in H216 on the back of rising investment in sectors liberalised by President Macri.
Domestic businesses will invest in expanding housing capacity, while foreign firms will look to acquire assets in Argentina's power
sector.
GDP By Expenditure Outlook
TABLE: 10-YEAR GDP FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
Fiscal Policy And Public Debt Outlook
Deficit Set To Narrow On Subsidy Reduction
Argentina's fiscal deficit is set to modestly narrow in 2016 on the back of tempered expenditure growth compared to 2016. Even still,
revenue growth will only keep pace with inflation, as the government's tax take is weighed on by a recession.
TABLE: GROSS FIXED CAPITAL FORMATION FORECASTS
TABLE: NET EXPORT FORECASTS
Structural Fiscal Position
External Trade And Investment Outlook
Reform Will Drive Improving External Accounts
Argentina's current account will return to surplus in 2016, as policy reforms enacted by President Maurico Macri drive export growth
and undermine imports. In the coming years, foreign investment into the country will increase as reform creates opportunities in energy,
power and agriculture.
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP FIVE GOODS IMPORTS IN 2014
TABLE: TOP FIVE GOODS EXPORTS IN 2014
Monetary Policy
Central Bank Independence Will Bolster Inflation-Fighting Credentials
The administration of Mauricio Macri will move to bolster the Banco Central de la República Argentina's independence after years
of executive interference in monetary policy. Coupled with recent steps to improve the reporting of inflation data, this will bolster the
BCRA's inflation fighting credibility, leading to a long-term decline in inflation expectations.
Currency Forecast
ARS: Market Sentiment Will Drive Near-Term Depreciation
The Argentine peso will steadily depreciate over the coming months as domestic firms increase spending on intermediate goods needed
for production, boosting dollar outflows. Over a longer time horizon, the peso will stabilise and gradually appreciate on the back of rising
foreign direct investment, especially into the power and energy sectors.
TABLE: BMI CURRENCY FORECAST
Regional Economic Outlook
Little Respite For Sovereign Risk In 2016
Sovereign risk will remain high in Latin America's major economies in 2016 as low commodity prices constrain government inflows,
leading to widening fiscal deficits and increased government borrowing. That said, robust macroeconomic buffers will limit the risk of
imminent debt distress for the majority of countries.
TABLE: KEY MACROECONOMIC INDICATORS - 2016 FORECASTS & TREND COMPARED WITH 2014
Chapter 2: 10-Year Forecast
The Argentine Economy To 2025
Long-Term Growth Driven By Reform Agenda
Argentina's real GDP growth will begin to accelerate over the coming five years, amid a gradual reversal of the interventionist policies
of President Cristina Fernández de Kirchner under the new government of Mauricio Macri. These reforms will lead to robust growth
during the second half of our 10-year forecast, driven by rising natural gas production and stronger inbound investment as the policy
environment evolves in a more business-friendly direction.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Improving Legislative Dynamics Will Support Reform
Argentine President Mauricio Macri will be able to implement the bulk of his reform agenda over the coming months, although he will
face resistance from opposition Senators and labour unions. The development of fissures within the Kirchnerist opposition will support
the passage of key pieces of legislation.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Post-2015 Election, Discourse Moves To The Centre
Argentina scores above the Latin America n average in our Long-Term Political Risk Index, but continued stability hinges on the
government's ongoing policy pivot towards more market-friendly policies. While the election of Mauricio Macri is set to usher in a more
reform-minded government, we highlight several risks that could threaten the country's multiyear political outlook.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And
Governance
TABLE: ARGENTINA EXPORT AND IMPORT DOCUMENTS
TABLE: ARGENTINA TRADE PROCEDURES BREAKDOWN
TABLE: LATIN AMERICA – TRADE PROCEDURES AND GOVERNANCE RISK
Vulnerability To Crime
Chapter 5:BMI Global Macro Outlook
Global Macro Outlook
Tail Risks Mounting Amid Sub-Par Growth
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%)
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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