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Argentina Country Risk Report Q1 2019

Argentina Country Risk Report Q1 2019

Argentina will remain in a recession through much of 2019, due to fiscal austerity and contractionary monetary policy, which will weigh on consumption and investment Although activity is unlikely to begin a sustained rebound until late 2019, export-oriented sectors will likely emerge as a key source of strength over the coming quarters

The Argentine peso will steadily depreciate over the coming quarters, but remain well within the Banco Central de la República Argentina (BCRA)'s non-intervention zone High interest rates and rebounding exports will underpin the unit's relative stability, although elevated inflation will erode its purchasing power and drive nominal depreciation

The BCRA will maintain aggressive, contractionary monetary policy over the coming quarters as it seeks to maintain the Argentine peso's stability Inflation is unlikely to decelerate significantly before H219, although interest rates may begin to fall sooner as inflation expectations adjust

President Mauricio Macri's public approval will fall due to the weak economy, and governability risks are high as protests and strikes will likely persist over the coming quarters

However, Macri's essential reforms have a large enough constituency to be durable over the medium term Forecast Changes

We have revised down our forecast for real GDP growth in 2018 to -2 0%, from -1 3%, and to -0 4% in 2019, from 2 0%, reflecting the likely impact of fiscal auster-ity and contractionary monetary policy on consumption and investment

We have downwardly revised Argentina's score on our Short-Term Political Risk Index to 59 8 out of 100, from 62 1 previously This reflects our weaker assess-ment of the country's social stability as the Macri administration faces elevated inflation, rising unemployment and frequent protests Additionally, the upcoming October 2019 general election poses risks to policy continuity

We have increased our end-2018 inflation forecast to 48 3% y-o-y, from 39 3% y-o-y, due to pass-through effects from the peso's significant depreciation in Q318 We forecast inflation of 27 9% at end 2019 Argentina Country Risk Q1 2019


Executive Summary
Core Views
Forecast Changes
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Argentina's Adjustment Will Prompt Sustained Recession
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
Argentina's Adjustment Will Narrow Current Account
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP FIVE GOODS IMPORTS (2017)
TABLE: TOP FIVE GOODS EXPORTS (2017)
Monetary Policy
Interest Rates In Argentina Set To Fall Modestly
Fiscal Policy And Public Debt Outlook
Argentina Set To Significantly Narrow Fiscal Deficit
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Argentina Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.ContentsCurrency Forecast
ARS: Stabilising But Steady Depreciation Ahead
TABLE: CURRENCY FORECASTS
10-Year Forecast
The Argentine Economy To 2027
Long-Term Growth Driven By Reform Agenda
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Argentina's President Is Vulnerable, His Policies Less So
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Under Macri, Discourse Moves To The Centre
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: FREE TRADE AGREEMENTS
TABLE: TARIFF AND NON-TARIFF TRADE BARRIERS
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Continued Growth Divergence And Policy Risks Ahead
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: ARGENTINA – MACROECONOMIC DATA AND FORECASTS

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