Argentina’s Economy Challenged In 2015
External shocks pose a challenge to Argentina’s economy in this election year according to reports.
In October, voters will go to the polls to elect a successor to President Cristina Fernandez, whose term ends in Y 2015.
“The external context presents certain challenges over the next few months. Amid the recession and pre-electoral climate in our country, the international situation cannot go unnoticed,” a report said in its latest economic outlook.
According to the International Monetary Fund (IMF), the global economy will grow 3.5% in Y 2015, a slight improvement spurred mainly by the developed nations which are expected to grow 2.4%, the biggest increase since Y 2010, the report notes.
Emerging economies, such as Argentina, however, are experiencing a slowdown for the 4th year running, with a projected growth of 4.3% on average.
Given this scenario, “the country’s exports will be deflated by price and by quantity,” said economist Matias Carugati.
In the agricultural sector, “the perceptible drop in international prices will reduce the value of exports, despite a record harvest,” Mr. Carugati said.
A case in point, he said, is the price of soy falling 35% in the past year, “a trend that will not turn around in Y 2015, according to the IMF.”
Official figures so far bear this out, “reflecting that exports of raw materials and byproducts did not grow in Q-1, due to decreases in prices that countered increases in the volumes shipped out,” said Mr. Carugati.
On the positive side, the flat growth in exports will be offset by the drop in the price of Crude Oil, “of which Argentina is a net importer,” he said.
Closer to home, the economic slowdown affecting Argentina’s South American neighbors, except Chile and Peru, will have a direct impact on its industrial exports, said the economist.
“These exports are mostly destined for other South American countries, unlike raw materials and byproducts,” which are distributed more widely, he said.
“Without a doubt, the Key concern is Brazil,” which consumes 21% of Argentina’s total exports and 47% of its industrial exports, said Mr. Carugati.
The # 1 economy in Latin America is expected to contract 1% in Y 2015, “due to spending cuts, problems with competitiveness and the impact of investigations into corruption,” he said.
Argentina’s exports to Brazil have already fallen 24% YTD.
What also matters is the expected rise of the interest rate in the US, and the strengthening USD, which “has weakened currencies around the globe,” said Carugati, noting that Brazil’s Real lost 24% of its value in the past 6 months while the EUR fell 14% due to domestic factors.
“The global landscape puts an economy with little wiggle room in a tough spot,” said Mr. Carugati.
By Juan Manuel Nievas Mao Pengfei
Paul Ebeling, Editor
HeffX-LTN
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