Country Report Argentina January 2020

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Country Report
Argentina
Generated on June 21st 2023

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Argentina 1
Argentina
Summary
2 Briefing sheet
Outlook for 2020-24

4 Political stability
4 Election watch
5 International relations
6 Policy trends
7 Fiscal policy
7 Monetary policy
7 International assumptions
8 Economic growth
8 Inflation
9 Exchange rates
9 External sector
9 Forecast summary
10 Quarterly forecasts
Data and charts

11 Annual data and forecast
12 Quarterly data
13 Monthly data
14 Annual trends charts
15 Quarterly trends charts
16 Monthly trends charts
17 Comparative economic indicators
Summary
17 Basic data
19 Political structure
Recent analysis
Economy
22 Forecast updates
29 Analysis
Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Argentina 2
Briefing sheet
Editor: Abhijit Surya
Forecast Closing Date: January 15, 2020
Political and economic outlook

Having taken office on December 10th 2019, the new president, Alberto Fernández of the left
wing Frente de Todos Peronist coalition, will have to work quickly to tackle the pressing
problems of economic crisis and distressed sovereign debt.
Despite the presence of leftist populists in the government, The Economist Intelligence Unit
expects Mr Fernández to follow a fairly pragmatic, centrist course. Nonetheless, a shift away
from orthodox economic policy will create market distortions.
Our forecasts assume that the government will restructure bonded external debt with a small
haircut of 25%. We expect the IMF to insist on this condition if it is to resume its lending
arrangement, which is a vital lifeline for Argentina amid its liquidity crunch.
We expect some moderate fiscal and monetary loosening, in line with Mr Fernández’s goal of
boosting consumption. However, a sharp drop in investment and persistently weak labour
market conditions will keep economic activity subdued in 2020.
The medium-term outlook will also be dampened by investor concerns over contract rights and
rule of law. The business environment will not be conducive to long-term investment, despite
huge potential in sectors such as energy, mining and agriculture.
Currency adjustment will briefly push the current account into surplus in 2020. However,
assuming that the high inflation problem is not tackled, we expect renewed deterioration in the
medium term, as Argentina’s macroeconomic normalisation remains elusive.
Key indicators
2019a 2020b 2021b 2022b 2023b 2024b
Real GDP growth (%) -2.7 -1.4 2.0 2.5 2.2 1.9
Consumer price inflation (av; %) 53.7 49.9 29.2 23.6 22.1 22.0
Government balance (% of GDP) -4.0 -4.8 -4.2 -4.6 -4.8 -4.8
Current-account balance (% of GDP) -1.2 0.3 -0.1 -1.1 -2.0 -2.5
Money market rate (av; %) 65.2 45.0 27.0 19.6 16.0 15.0
Unemployment rate (%) 10.2 9.8 9.3 8.9 8.7 8.7
Exchange rate Ps:US$ (av) 48.16 62.24 70.24 79.24 89.40 100.86
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Argentina 3
Key changes since December 6th

Mr Fernández assumed office with a cabinet comprising both moderates and hardline leftists.
The jostling for dominance between these two factions will present challenges for the president
during his four-year term, which ends in 2023.
On December 23rd 2019 Mr Fernández signed into law a broad package of economic measures
aimed at boosting domestic demand. The increased public spending is largely paid for by tax
increases, indicating a commitment to fiscal prudence.
Default risk is high. The Buenos Aires provincial government has indicated that it cannot repay
US$250m in principal repayments due on January 26th, and has asked creditors for an extension
until May 1st. This complicates sovereign debt-restructuring talks as well.
Preliminary economic data for October-November 2019 indicate a smaller fourth-quarter
contraction than initially expected. We now expect GDP to contract by 2.7% in 2019 (from 3.3%
in our previous report).
Although we retain our outlook for continued weakness in the first half of 2020, the statistical
carryover from 2019 will be significantly less negative. As a result, we now forecast a GDP
contraction of 1.4% in 2020 (from 2.5% previously).
The month ahead

TBC—Buenos Aires province debt negotiations: The provincial governor, Axel Kicillof, seeks
to defer payments (due to creditors on January 26th) until May 1st. However, an agreement can
only be reached if 75% of creditors agree to the terms. A disorderly default at this level would
have negative spillover effects for sovereign debt negotiations.
Major risks to our forecast

Scenarios, Q4 2019 Probability Impact Intensity
Very
Failure to reprofile debt triggers new sovereign default Very high 25
high
Very
US dollar withdrawals spark bank run High 20
high
Very
Increased debt monetisation causes inflation to accelerate once again High 20
high
Banks' balance sheets worsen as economic crisis deepens High High 16
Steeper than expected economic crisis generates increased political
High High 16
instability
Note. Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential
developments that might substantially change the business operating environment over the coming two
years. Risk intensity is a product of probability and impact, on a 25-point scale.
Source: The Economist Intelligence Unit.

Argentina 4
Outlook for 2020-24

Political stability
Having assumed the presidency on December 10th 2019, Alberto Fernández of the leftwing
Frente de Todos (FdT) Peronist coalition is likely to spend at least his first year in office battling
the economic crisis. Financial market instability— precipitated by Mr Fernández's own rise to
power—has pushed up inflation, substantially increased default risk and depressed investor
sentiment. At the heart of market concerns is the potential for a return to the leftist populist
policies espoused by past Peronist governments, especially that of a former president (2007-15)
and newly inaugurated vicepresident, Cristina Fernández de Kirchner. Although Mr Fernández is
more of a pragmatist himself, he has never before held electoral office and remains reliant on
political support from the more leftwing faction of Peronism with whom Ms Fernández (no
relation) is aligned. Balancing the demands of the moderate centrist and hardline leftist factions of
Peronism will present challenges for the president during his four-year term.
The Economist Intelligence Unit assumes that in the near term, policymaking will follow a fairly
centrist, pragmatic path, partly reflecting political constraints on the ruling coalition. Although the
FdT controls the Senate (the upper house of Congress), it is only the second-largest grouping in
the Chamber of Deputies (the lower house) after the centre-right opposition coalition of Juntos
por el Cambio (JC). The government's minority position in the lower house ensures that
policymaking will entail a degree of consensus building. In fact, the first major legislative package
passed by the Fernández administration had to incorporate significant concessions to smaller
centrist parties, such as Consenso Federal and Protectora Fuerza Politica, in order to garner
congressional approval (as the JC withheld its support altogether). A similar dynamic was at play
in the provincial legislature of Buenos Aires, where the leftist governor, Axel Kicillof, had to water
down a tax reform bill to make it more palatable to the JC (which controls the Buenos Aires
Senate).
Political stability will be uncertain as Mr Fernández faces immediate pressure—from unions and
from voters—for improved living standards, which will be impossible to produce in the near term.
Thus, we expect him to be denied the benefit of any substantial honeymoon period with the
electorate. We also view the risk of social unrest as very high in the short to medium term.
Election watch
Federal and provincial elections in 2019 paved the way for a return of Peronism, after a brief period
in the political wilderness. Mr Fernández easily won the presidency in the first round of the
October presidential election, and the FdT and its allies won or retained control of 17 of the
country's 23 governorships, including the all-important Buenos Aires province (which accounts
for 40% of the population). However, the JC is far from being a spent force and the October
election confirmed its position as the main opposition to Peronism. The previous president,
Mauricio Macri (201519), performed much better against Mr Fernández in the October poll than
he had in the August primary. The JC also retains an important presence in the provinces,
controlling Buenos Aires city government, three governorships and at least one parliamentary
chamber across seven provincial legislatures.
The next national polls will be mid-term elections in October 2021, where half of the lower house
and one-third of the upper house will be contested. The FdT will look to consolidate its power in
these elections, but its ability to do so will depend on the strength of economic recovery and a
subsequent, perceived rise in living standards.

Argentina 5
International relations
The direction of foreign policy will change under Mr Fernández, as Mr Macri’s efforts to ensure a
greater focus on free trade are neglected. With Mr Fernández at the helm, Mercosur (Southern
Cone customs union also comprising Brazil, Paraguay and Uruguay) will effectively be divided
along ideological lines, with one of its key members, Brazil, on the right and the other,
Argentina, on the left. A divided Mercosur (as well as European questions over Brazil’s
environmental record) will complicate ratification of the EU-Mercosur deal; we currently assume
that it will not be approved in the 2020-24 forecast period. Divisions within Mercosur will also
complicate the group’s forthcoming negotiations (scheduled for 2020) on trade deals with
Singapore and South Korea
Mr Macri had courted trade and investment links with the EU and the US, with some success.
These efforts are likely to subside, and the Fernández government may well have difficult relations
with the administration of the US president, Donald Trump, in particular. Ties with China,
however, will continue to deepen under Mr Fernández—as under the presidencies of Mr Macri
and Ms Fernández before him. Regardless of ideology, Argentinian governments have come to
view China as a vital trade and investment partner, and this will not change. Mr Fernández will
seek to tighten this relationship further, with a view to securing vital bilateral finance, amid
growing risks to the IMF lending arrangement and a sudden halt to private-sector finance.

Argentina 6
Policy trends
Policymaking for the Fernández administration will be driven in the near term by two main
imperatives: reviving the domestic economy and averting a disorderly sovereign default. It has
moved slowly so far on the latter, but has taken some ad hoc temporary measures to try to
address the former. In late December 2019 it enacted the "Social Solidarity and Productive
Reactivation" (SSPR) law, which encompasses a broad set of economic measures aimed at
stimulating the economy. In order to lift domestic demand, the government has frozen utilities
tariff prices for the next six months, reduced prices of medicines, given tax rebates for the most
vulnerable members of society and provided distressed small and medium-sized enterprises with
refinancing options. In addition, through executive decree Mr Fernández has mandated wage
increases for both public- and private-sector workers, and higher severance payments for workers
fired without cause. However, in recognition of the fiscal burden that these measures would
impose on the state, the government has also enacted a number of tax increases to keep financing
risks in check.
The SSPR law includes across-the-board increases in export duties, a doubling of the tax on
personal property, a suspension of planned reductions in employer social-security contribution
rates, and a new 30% tax on the purchase of dollars and on the consumption of goods and
services abroad. In addition to the SSPR law, the administration has also taken steps to maintain
exchange-rate stability by extending capital controls, while also reintroducing import restrictions
as part of an import-substitution industrialisation policy.
Broadly speaking, the policy framework outlined by the administration was in line with our
expectations; although many of the announced measures are fairly pragmatic under the
circumstances, they are far from being business-friendly. However, markets have been
encouraged by the new administration's commitment to fiscal prudence, which allowed the
government to once again place debt in domestic markets in December 2019, after having been
shut out from them in August-November of last year.
Despite the positive fiscal signals sent to investors, the government has to move quickly to
conclude debtswap negotiations with its external creditors. The economy minister, Martín
Guzmán, a young academic with expertise in debt restructuring, has stated that the government
would like to agree a reprofiling with private creditors by the end of March (large payments are
due in April-May), which would be a positive step. However, he has also stated that the
government will not seek further IMF credits. We do not believe that this stance is realistic, on the
basis that private creditors reject a reprofiling without the policy straitjacket of an IMF deal. This
is particularly true given that Argentina is unlikely to be able to meet large repayments falling due
to the IMF from 2021, without fresh credits that will not be supplied by the private sector alone.
The alternative—falling into arrears with the IMF while probably spinning these arrears as a
“repudiation” of bad debts taken on by the Macri administration—would undoubtedly leave
creditors unimpressed and would continue to restrain access to credit, ultimately leading
Argentina down the path to a disorderly default. For this reason, our numbers (for now, at least)
assume a restructuring of bonded external debt with a small haircut of 25% and continuity in IMF
lending within our five-year forecast period.
However, the risk of default will remain very high in the near term. A fresh problem arose in mid-
January when Mr Kicillof announced that the Buenos Aires province would not be able to honour
US$250m in principal repayments on a dollar-denominated bond falling due on January 26th. Mr
Kicillof has requested an extension from creditors until May 1st, while the provincial government
seeks its own debt restructuring; Mr Guzmán ruled out a bailout for the province, but a payment
deferral would be possible if 75% of creditors agree to it. The Buenos Aires bonds in question do
not have a cross default clause, which absolves the sovereign from liability. However, the issue is
still likely to complicate the central government's efforts in debt negotiations.

Argentina 7
Fiscal policy
Fiscal policy under Mr Fernández will be more expansionary than under the Macri administration,
but increased public spending will be for the most part funded by tax increases rather than higher
deficits. The slate of tax increases introduced in the SSPR law will bring in an additional 2% of
GDP in fiscal revenue, keeping the primary fiscal deficit at 0.7% of GDP in 2020—the same level as
in 2019. Assuming that a renegotiated IMF deal will remain in place and serves as a policy
straitjacket, we do not expect the primary fiscal deficit to spiral out of control during the forecast
period.
We expect that, after rising to 100.6% of GDP in 2019, public debt will gradually fall over the
forecast period, to 58.9% of GDP by 2024, on the back of debt restructuring (with the 25% haircut),
high inflation and a return to currency overvaluation. Financing of the public debt—especially the
large stock of US dollardenominated public debt—will be a major challenge, as long as doubts
persist surrounding Mr Fernández’s commitment to avoid disorderly default and to steer a
relatively pragmatic policy course.
Monetary policy
The Fernández administration is ushering in a new era of monetary expansion. The new president
of the Banco Central de la República Argentina (BCRA, the central bank), Miguel Angel Pesce,
shares the president's view that "inflation is not a monetary phenomenon", and preliminary
indications suggest that he will abandon the monetary-targeting regime put in place by the former
BCRA president, Guido Sandleris (2018-19). The BCRA has cut the policy rate three times under
Mr Pesce's leadership, bringing it to 52% currently, from 63% in early December 2019.
Rapid monetary loosening was made possible by tighter capital controls, as well as a seasonal
increase in the demand for pesos in the summer months. This expansionary stance will keep price
pressures elevated in the coming months, although inflation will end 2020 at a still high 39%.
Inflation will remain above 20% in the medium term, keeping real rates negative. This will be to the
detriment of the development of long-term finance during the forecast period and will
keep Argentina’s bankingsector penetration extremely low, even by regional comparison.
International assumptions
2019 2020 2021 2022 2023 2024
Economic growth (%)
US GDP 2.3 1.7 1.8 2.0 1.8 2.2
OECD GDP 1.6 1.5 1.8 1.9 1.8 2.0
World GDP 2.3 2.4 2.8 2.9 2.8 2.9
World trade 1.5 2.3 3.6 3.7 3.7 3.8
Inflation indicators (% unless otherwise indicated)
US CPI 1.8 1.6 1.9 2.1 1.8 1.8
OECD CPI 1.9 1.8 2.0 2.2 2.1 2.0
Soya beans (measured in US$) -4.1 3.5 1.0 -1.0 1.7 1.1
Oil (Brent; US$/b) 64.0 63.0 67.0 71.0 73.8 71.0
Non-oil commodities (measured in US$) -6.6 0.8 3.9 1.8 0.9 2.5
Financial variables
US$ 3-month commercial paper rate (av; %) 2.2 1.5 1.5 1.8 2.2 2.3

Argentina 8
Economic growth
Argentina’s economic outlook has worsened significantly, not only for the near term (a recession
that began in 2018 is likely to extend well into 2020), but also for the medium term (as reforms to
reduce inefficiencies and boost productivity fail to materialise). After contracting by an estimated
2.7% in 2019, we expect GDP to decline by a further 1.4% in 2020. Fixed investment, which was
already falling, decelerated quickly after the August 2019 primary election, with significant knock-
on effects for private consumption.
Our relatively benign forecast for 2020 assumes contraction in the first half of the year followed
by a very modest recovery (on the back of macroeconomic policy loosening and sustained import
compression). Reflecting strongly negative carryover effects, we expect Argentina to record
another year of overall GDP contraction. The biggest risk to our forecast continues to be a
breakdown of negotiations between the government and its external creditors, which would put
Argentina on the path to disorderly default.
The dramatic currency adjustment of the past year will yield an improvement in net exports earlier
in the forecast period. However, the global economic environment will be weak and the business
environment will not be conducive to long-term investment, despite huge potential in key sectors
such as energy, mining and agriculture. We assume that foreign direct investment (FDI) will
be especially weak. Moreover, a loosening of policy suggests that Argentina’s perennial inflation
problem will not be resolved, and the peso will again start to lose competitiveness towards the
end of the forecast period—reversing the recent gains in net exports.
Economic growth
% 2019a 2020b 2021b 2022b 2023b 2024b
GDP -2.7 -1.4 2.0 2.5 2.2 1.9
Private consumption -7.0 -2.3 3.1 3.0 2.7 2.4
Government consumption -0.7 1.1 2.9 2.4 2.6 2.5
Gross fixed investment -15.2 -4.5 2.5 4.2 2.3 1.6
Exports of goods & services 8.7 0.4 3.3 3.4 2.5 2.4
Imports of goods & services -17.0 -2.7 7.1 5.8 4.1 3.7
Domestic demand -7.8 -2.1 3.0 3.1 2.7 2.3
Agriculture 18.7 2.2 3.2 3.0 2.8 2.9
Industry -3.0 -1.2 4.0 2.6 2.4 2.0
Services -5.3 -2.1 0.9 2.4 2.1 1.7
Inflation
After another price spike resulting from the post-primary currency slump, we expect a moderate
slowdown in inflation—to 39.1% by the end of 2020—on the back of controls and tariff freezes, as
long as the authorities manage to prevent further sharp currency depreciation. However, the
outlook thereafter is poor, as relatively loose policy fails to get to grips with the fundamental
drivers of inflation (expansionary fiscal and monetary policy). We now expect inflation to remain
above 20% over the forecast period. This is a level that Argentinians will be familiar (and even
comfortable) with, but it will ultimately produce real currency appreciation and the need for peso
adjustment, which in the long term creates its own inflationary pressure. At present, we are not
confident that Mr Fernández will be able to break this cycle.

Argentina 9
Exchange rates
After repeated currency runs, the peso ended 2019 at under Ps60:US$1. This is substantially
undervalued in real, trade-weighted terms (by about 18% relative to its ten-year average). We
expect the authorities to prefer nominal peso stability in early 2020, as sharper currency
movements would be damaging to the uncertain economic situation. Once ambiguity around debt-
restructuring talks subsides, legislators will allow for moderate depreciation to support currency
competitiveness. Inflation, however, will continue to outpace peso weakening, producing renewed
real currency appreciation. Capital controls that are currently in place have led to a revival of
parallel currency markets.
The black-market premium for dollars will spike in 2020 (it is already at 27%), as a result of capital
controls, high default risk and the newly imposed foreign consumption tax. However, assuming
capital controls are eventually loosened and that relatively pragmatic economic policy is
maintained, the black-market premium will narrow over the forecast period. A failure to curb the
black-market premium in the medium term will distort relative prices, with significant consequences
for inflation and for dollarised sectors of the economy.
External sector
We expect the current account to be roughly in balance in 2020-21, but thereafter this
improvement will be reversed, as renewed real currency appreciation draws in imports. Meanwhile,
a deterioration of the business environment will keep FDI subdued, which will have a knock-on
effect on exports in sectors such as oil, mining and agriculture. The current-account deficit will
remain moderate compared with its 2017 peak. However, financing it will be more complex, given
the outlook for continued weak portfolio flows and for weak FDI inflows, equal to less than 1.5%
of GDP. In this environment, we expect reserves to fall for most of the forecast period. Import
cover will therefore deteriorate, despite the expected decline of imports in the near term.
Forecast summary
Forecast summary
(% unless otherwise indicated)
2019a 2020b 2021b 2022b 2023b 2024b
Real GDP growth -2.7 -1.4 2.0 2.5 2.2 1.9
Industrial production growth -7.4 -2.4 4.0 2.6 2.4 2.0
Gross agricultural production growth 18.7 2.2 3.2 3.0 2.8 2.9
Unemployment rate (av) 10.2 9.8 9.3 8.9 8.7 8.7
Consumer price inflation (av) 53.7 49.9 29.2 23.6 22.1 22.0
Consumer price inflation (end-period) 55.0 39.1 26.1 21.7 22.4 21.7
Prime lending rate 67.3 43.7 29.5 22.2 18.3 17.1
NFPS balance excl privatisation (% of GDP) -4.0 -4.8 -4.2 -4.6 -4.8 -4.8
Exports of goods fob (US$ bn) 65.7 66.4 67.8 66.1 64.1 63.5
Imports of goods fob (US$ bn) 48.1 46.8 51.3 56.2 60.5 63.4
Current-account balance (US$ bn) -5.3 1.6 -0.8 -7.7 -15.6 -20.8
Current-account balance (% of GDP) -1.2 0.3 -0.1 -1.1 -2.0 -2.5
External debt (year-end; US$ bn) 283.6 277.3 295.9 296.2 299.0 300.9
Exchange rate Ps:US$ (end period) 59.95 66.09 74.56 84.12 94.90 106.36
Exchange rate Ps:€ (av) 53.81 69.71 82.00 96.48 110.41 125.07
Exchange rate Ps:€ (endperiod) 66.25 75.34 89.47 103.05 117.68 131.89

Argentina 10
Quarterly forecasts
Quarterly forecasts
2019 2020 2021
1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr
GDP
% change, quarter on quarter -0.1 -0.7 0.9 -1.0 -0.9 -0.2 0.1 0.3 0.5 0.8 0.9 0.7
% change, year on year -6.4 -2.2 -1.1 -0.9 -1.7 -1.2 -2.0 -0.7 0.7 1.7 2.5 2.9
Private consumption
% change, quarter on quarter -1.4 0.0 0.3 -3.5 0.1 -0.6 0.8 0.9 1.0 0.5 0.9 1.5
% change, year on year -11.8 -7.8 -3.3 -4.6 -3.2 -3.8 -3.3 1.1 2.0 3.2 3.3 3.9
Government consumption
% change, quarter on quarter 1.6 -0.9 -0.1 0.0 0.0 0.7 1.3 0.7 0.5 0.6 0.6 1.0
% change, year on year -1.4 -1.7 -0.2 0.5 -1.0 0.6 2.0 2.8 3.3 3.1 2.4 2.8
Gross fixed investment
% change, quarter on quarter -0.9 0.3 0.0 -4.6 -2.5 0.2 1.9 1.0 0.1 0.3 0.7 0.3
Exports of goods & services
% change, quarter on quarter 1.0 -0.4 2.0 2.3 0.4 -2.0 0.1 -0.6 1.2 1.8 2.5 2.7
% change, year on year 0.9 15.8 14.6 5.0 4.3 2.6 0.7 -2.1 -1.3 2.5 5.0 8.5
Imports of goods & services
% change, quarter on quarter -2.2 -1.9 1.3 -1.1 -6.0 -4.0 0.2 0.3 12.0 9.0 4.5 7.5
% change, year on year -25.2 -22.3 -13.3 -3.9 -7.6 -9.6 -10.6 -9.3 8.1 22.7 28.0 37.2
Domestic demand
% change, quarter on quarter -2.2 1.5 0.5 -3.6 -1.3 0.0 2.7 0.3 0.4 0.4 0.8 1.3
Consumer prices
% change, quarter on quarter 10.1 11.1 10.0 13.4 12.5 9.4 7.8 7.1 6.1 6.0 6.0 6.0
% change, year on year 51.8 56.3 54.1 52.6 55.9 53.6 50.6 42.2 34.1 29.8 27.6 26.2
Producer prices
% change, quarter on quarter 5.0 12.7 12.2 15.5 11.5 8.6 6.8 6.0 6.1 6.1 6.1 6.1
% change, year on year 66.3 64.9 52.7 53.5 62.9 56.8 49.3 37.1 30.4 27.5 26.7 26.7
Exchange rate R:US$
Average 39.00 43.86 50.44 59.33 60.19 60.96 62.70 65.10 67.10 69.15 71.27 73.45
End-period 43.25 42.36 57.49 59.95 60.58 61.83 63.90 66.09 68.12 70.21 72.36 74.56
Interest rate (%; av)
Money market rate 55.4 69.0 71.5 64.8 52.0 50.0 42.0 36.0 30.0 28.0 26.0 24.0

Argentina 11
Data and charts

Annual data and forecast
2015a 2016a 2017a 2018a 2019b 2020c 2021c
GDP
Nominal GDP (US$ bn) 644.9 557.2 642.5 519.7 448.6 513.4 610.4
Nominal GDP (Ps bn) 5,954 8,223 10,642 14,600 21,605 31,953 42,876
Real GDP growth (%) 2.7 -2.1 2.7 -2.5 -2.7 -1.4 2.0
Expenditure on GDP (% real change)
Private consumption 3.7 -0.8 4.0 -2.4 -7.0 -2.3 3.1
Government consumption 6.9 -0.5 2.7 -3.3 -0.7 1.1 2.9
Gross fixed investment 3.5 -5.8 12.2 -5.7 -15.2 -4.5 2.5
Exports of goods & services -2.8 5.3 1.7 -0.7 8.7 0.4 3.3
Imports of goods & services 4.7 5.8 15.4 -4.7 -17.0 -2.7 7.1
Origin of GDP (% real change)
Agriculture 7.5 -4.7 3.0 -14.3 18.7 2.2 3.2
Industry 1.4 -5.8 2.5 -3.1 -3.0 -1.2 4.0
Services 2.7 0.0 2.3 -0.6 -5.3 -2.1 0.9
Population and income
Population (m) 43.1b 43.5b 43.9b 44.4b 44.8 45.2 45.6
GDP per head (US$ at PPP) 21,888b 21,439b 22,206b 21,971b 21,679 21,557 22,215
Recorded unemployment (av; %) 6.5b 8.5b 8.4 9.2b 10.2 9.8 9.3
Fiscal indicators (% of GDP)
Public-sector balance -4.7 -5.8 -5.9 -5.0 -4.0 -4.8 -4.2
Public-sector debt interest payments 2.0 1.6 2.1 2.7 3.3 4.1 3.2
Public-sector primary balance -2.7 -4.2 -3.8 -2.3 -0.7 -0.7 -1.0
Net public debt 52.9 53.3 56.1 85.6 100.6 71.2 65.4
Prices and financial indicators
Exchange rate Ps:US$ (av) 9.23 14.76 16.56 28.09 48.16 62.24 70.24
Consumer prices (end-period; % change) 26.9 41.0 24.8 47.6 55.0 39.1 26.1
Producer prices (av; % change) 11.9 37.2 16.1 52.2 58.3 50.2 27.7
Stock of money M1 (% change) 36.3 14.6 28.5 11.9 37.0 40.0 27.5
Stock of money M2 (% change) 36.7 17.2 29.9 14.3 34.0 36.0 22.0
Lending interest rate (av; %) 24.9 31.2 26.6 48.5 67.3 43.7 29.5
Current account (US$ m)
Trade balance -785 4,416 -5,447 -745 17,635 19,585 16,495
Goods: exports fob 56,809 57,960 58,662 61,799 65,694 66,411 67,813
Goods: imports fob -57,594 -53,544 -64,109 -62,544 -48,059 -46,826 -51,318
Services balance -5,815 -8,452 -9,713 -9,184 -5,501 -2,197 -3,974
Primary income balance -12,105 -12,192 -16,381 -18,627 -18,300 -16,747 -14,263
Secondary income balance 1,083 1,123 378 1,281 881 957 894
Current-account balance -17,622 -15,105 -31,163 -27,276 -5,284 1,598 -847
External debt (US$ m)
Debt stock 176,575 188,758 236,471 280,516 283,640 277,346 295,945
Debt service paid 17,902 25,905 39,923 37,221 28,117 20,605 21,897
Debt service due 18,242 25,905 39,923 37,390 28,117 20,605 21,897
International reserves (US$ m)
Total international reserves 25,524 38,425 55,330 66,220 44,781 44,261 52,122
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: IMF, International Financial Statistics.

Argentina 12
Quarterly data
2017 2018 2019
4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr
Non-financial public sector
finance (Ps m)
Revenue excl privatisation 531,929572,038622,962683,231 722,330799,526 971,3941,053,982
Expenditure 789,990663,561782,626815,9861,066,314914,3081,143,8131,222,871
- - - -
Balance -91,523 -343,984 -172,419 -168,889
258,060 159,664 132,755 114,782
Output
GDP at constant 1993 prices
738.0 737.8 701.1 699.5 690.9 690.5 685.4 691.8
(annual rates; Ps bn)
GDP at constant 1993 prices (%
4.3 3.5 -2.5 -4.3 -6.4 -6.4 -2.2 -1.1
change, year on year)
Industrial production index
136.9 124.9 130.6 128.0 120.1 110.8 120.6 122.3
(2004=100)
Industrial production index (%
4.7 3.9 -1.8 -8.4 -12.3 -11.3 -7.6 -4.4
Prices
Consumer prices (Dec 16=100) 121.7 130.1 140.4 156.5 179.3 197.4 219 241
Consumer prices (% change, year
23.5 25.3 27.1 35.4 47.4 51.8 56.3 54.1
on year)
Producer prices (Dec 2015=100) 155.7 173.8 197.6 239.6 275.3 289.1 325.9 365.8
Producer prices (% change, year
16.9 26.3 40.8 60.9 76.8 66.3 64.9 52.7
on year)
Financial indicators
Exchange rate Ps:US$ (av) 17.56 19.84 23.49 32.02 37.03 39.00 43.86 50.44
Exchange rate Ps:US$ (end-period) 18.60 20.60 28.80 41.15 37.60 43.25 42.36 57.49
Deposit rate (av; %) 20.7 21.3 24.0 34.8 47.7 40.5 48.9 52.8
Lending rate (av; %) 29.2 28.7 37.5 56.2 71.8 58.1 70.8 52.8
Money market rate (av; %) 28.0 27.5 35.5 48.3 65.0 55.4 69.0 71.5
M1 (% change, year on year) 28.5 23.6 33.4 30.4 11.9 10.1 6.0 14.4
M2 (% change, year on year) 29.9 26.1 33.7 31.6 14.3 12.6 9.1 15.2
Merval stockmarket index (end-
30,066 31,115 26,037 33,462 30,293 33,466 41,796 29,067
period; June 30th 1986=US$0.01)
Merval stockmarket index (%
77.7 53.5 19.1 28.3 0.8 7.6 60.5 -13.1
Sectoral trends
Crude oil production (m barrels/day) 0.58 0.58 0.58 0.58 0.59 0.58 0.58 0.58
Crude oil production (% change,
-1.7 -1.7 3.6 0.0 1.6 0.0 -0.2 0.1
year on year)
Foreign trade (US$ m)
Exports fob 14,525 14,531 15,512 15,654 16,084 14,170 16,620 17,170
Imports cif -17,733 -16,918 -18,015 -17,196 -13,353 -12,166 -12,988 -13,307
Trade balance -3,208 -2,387 -2,503 -1,542 2,731 2,004 3,632 3,863
Foreign payments (US$ m)
Merchandise trade balance fob-fob -2,435 -1,665 -1,697 -746 3,362 2,550 4,217 4,471
Services balance -2,029 -3,434 -2,561 -2,047 -1,141 -1,732 -1,349 -1,468
Primary income balance -4,726 -4,487 -4,648 -4,898 -4,594 -4,593 -4,866 -4,282
Net transfer payments 17 161 463 249 407 274 84 227
Current-account balance -9,174 -9,426 -8,442 -7,442 -1,966 -3,501 -1,914 -1,052
Reserves excl gold (end-period) 53,031 59,691 59,268 46,532 63,964 63,775 62,019 45,764
Sources: Ministerio de Economía; IEA, Monthly Oil Market Report; IMF, International Financial Statistics; Instituto Nacional
de Estadística y Censos.

Argentina 13
Monthly data
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Exchange rate Ps:US$ (av)
2017 15.909 15.594 15.516 15.353 15.732 16.117 17.197 17.419 17.245 17.469 17.483 17.718
2018 18.982 19.833 20.695 20.237 23.678 26.566 27.530 30.111 38.433 36.957 36.385 37.735
2019 37.288 38.305 41.416 43.163 44.777 43.631 42.480 52.491 56.363 58.440 59.645 n/a
Exchange rate Ps:US$ (end-period)
2017 15.900 15.500 15.400 15.400 16.100 16.600 17.650 17.300 17.300 17.650 17.300 18.600
2018 19.600 20.100 20.600 20.550 24.910 28.800 27.480 36.700 41.150 35.850 37.620 37.600
2019 37.250 39.050 43.250 44.050 44.660 42.360 43.780 59.410 57.490 59.570 59.840 n/a
M1 (% change, year on year)
2017 22.0 21.7 28.4 32.7 30.5 33.3 33.1 34.1 35.2 32.6 29.5 28.5
2018 26.0 28.4 23.6 23.9 29.1 33.4 26.0 22.4 30.4 14.2 11.0 11.9
2019 9.3 10.2 10.1 11.5 10.5 6.0 13.7 18.4 14.4 35.2 n/a n/a
M2 (% change, year on year)
2017 24.1 24.3 30.5 34.2 32.1 35.1 34.2 35.6 36.2 33.5 30.5 29.9
2018 28.8 30.0 26.1 26.7 30.7 33.7 27.5 24.5 31.6 17.7 14.1 14.3
2019 11.2 11.5 12.6 13.7 13.4 9.1 15.0 18.7 15.2 32.4 n/a n/a
Industrial production (% change, year on year)
2017 -1.1 -8.0 -0.8 -3.8 3.9 7.6 6.9 6.9 3.7 7.2 5.0 1.9
2018 4.1 6.4 1.6 4.0 -1.1 -8.0 -6.4 -6.2 -12.6 -8.4 -13.9 -14.8
2019 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Deposit rate (av; %)
2017 18.6 18.5 18.2 17.7 18.1 18.2 18.5 18.9 19.3 19.7 20.8 21.6
2018 21.6 21.4 20.8 20.8 24.5 26.7 32.6 32.6 39.2 48.0 48.6 46.4
2019 44.9 37.6 39.2 46.4 50.5 49.9 47.5 53.1 57.9 54.2 45.4 40.9
Lending rate (av; %)
2017 25.4 25.0 24.3 25.0 25.5 25.7 26.3 26.9 27.4 27.1 29.3 31.2
2018 29.4 28.7 27.9 28.1 41.3 43.1 50.9 49.9 67.8 78.1 72.1 65.1
2019 61.1 51.8 61.2 68.8 73.3 70.2 62.5 78.7 85.6 71.0 64.0 n/a
Merval stockmarket index (end-period; June 30th 1986=US$0.01)
2017 19,063 19,117 20,265 21,020 22,349 21,869 21,582 23,589 26,078 27,935 26,905 30,066
2018 34,939 33,011 31,115 30,006 28,559 26,037 29,287 29,294 33,462 29,491 31,483 30,293
2019 36,327 34,486 33,466 29,571 33,950 41,796 42,058 24,609 29,067 34,995 34,500 41,671
Consumer prices (% change, year on year; av)
2017 37.6 35.1 33.8 29.0 24.5 22.1 21.6 24.2 24.9 23.2 22.5 24.8
2018 25.0 25.4 25.4 25.5 26.3 29.5 31.2 34.4 40.5 45.9 48.5 47.6
2019 49.3 51.3 54.7 55.8 57.3 55.8 54.4 54.5 53.5 50.5 52.1 n/a
Producer prices (% change, year on year; av)
2017 24.8 20.2 17.6 15.6 13.8 11.9 11.8 13.6 15.2 16.2 16.7 17.9
2018 21.8 27.1 29.9 32.4 41.9 47.9 50.2 54.5 77.6 79.3 75.8 75.3
2019 68.1 64.3 66.7 70.6 65.7 59.2 52.3 61.6 45.3 46.5 55.0 n/a
Total exports fob (US$ m)
2017 4,291 3,899 4,564 4,867 5,493 5,152 5,298 5,265 5,268 5,280 4,668 4,577
2018 4,810 4,304 5,417 5,216 5,163 5,133 5,415 5,202 5,037 5,398 5,350 5,336
2019 4,585 4,448 5,137 5,337 6,044 5,239 5,856 5,568 5,746 5,889 5,854 n/a
Total imports cif (US$ m)
2017 4,344 4,117 5,475 4,973 6,064 5,898 6,043 6,317 5,966 6,207 6,162 5,364
2018 5,743 5,196 5,979 6,106 6,448 5,461 6,182 6,314 4,700 5,073 4,363 3,917
2019 4,212 3,998 3,956 4,172 4,645 4,171 4,905 4,400 4,002 4,121 3,409 n/a
Trade balance fob-cif (US$ m)
2017 -53 -218 -911 -106 -571 -746 -745 -1,052 -698 -927 -1,494 -787
2018 -933 -892 -562 -890 -1,285 -328 -767 -1,112 337 325 987 1,419
2019 373 450 1,181 1,165 1,399 1,068 951 1,168 1,744 1,768 2,445 n/a
Foreign-exchange reserves excl gold (US$ m)
2017 44,547 48,370 48,573 45,597 43,784 45,453 44,975 46,637 47,622 49,251 52,412 53,031
2018 59,728 59,292 59,691 53,723 47,590 59,268 55,501 50,254 46,532 51,510 48,730 63,964
2019 64,236 65,128 63,775 69,033 62,492 62,019 64,931 51,158 45,764 40,265 40,855 n/a
Sources: IMF, International Financial Statistics; Haver Analytics.

Argentina 14
Annual trends charts

Argentina 15
Quarterly trends charts

Argentina 16
Monthly trends charts

Argentina 17
Comparative economic indicators
Basic data
Land area
2,737,000 sq km
Population
44.5m (2018, World Bank)

Argentina 18
Main towns
Population (m; 2010 census)
Federal district & Buenos Aires province: 18.5
Córdoba: 3.3
Santa Fe: 3.2
Mendoza: 1.7
Tucumán: 1.4
Climate
Varies from subtropical in the north to sub-arctic in the south
Weather in Buenos Aires (altitude 27 metres)

Hottest month, January, 1729°C (average daily minimum and maximum); coldest month, June, 5
14°C; driest month, July, 56 mm average rainfall; wettest month, March, 109 mm average rainfall
Language
Spanish
Measures
Metric system. Among other measures in use are: fanega = 3.77 bushels; quintal = 100 kg
Currency
Argentinian peso (Ps). Average exchange rate in 2018: Ps28.09:US$1; year-end rate in 2018:
Ps37.60:US$1
Fiscal year
January-December
Time
3 hours behind GMT
Public holidays
January 1st (New Year’s Day); February 24th (Carnival); February 25th (Shrove Tuesday); March
24th (Memorial Day); April 2nd (Veterans’ Day); April 10th (Good Friday); April 12th (Easter
Sunday); May 1st (Labour Day); May 25th (National Day); June 20th (Flag Day);
July 9th (Independence Day); August 17th (Assumption); October 12th (Day of Respect for
Cultural Diversity); November 23rd (National Sovereignty Day); December 8th (Feast of the
Immaculate Conception); December 25th (Christmas Day)

Argentina 19
Political structure
Official name
Republic of Argentina
Form of state
Argentina 20
Federal republic
The executive
The president, who serves as head of state and commander in chief of the armed forces, is elected
for a four-year term and can be re-elected for one consecutive term. The president appoints a
cabinet and a chief of cabinet, who can be removed by a majority vote in each chamber
National legislature
Bicameral Congress: 257-member Chamber of Deputies (the lower house), directly elected for a
four-year term (half of the lower house stands for re-election every two years); 72-member Senate
(the upper house), directly elected for a six-year term; three senators are elected per province, two
from the leading party and one from the runner-up; one-third of the upper house stands for re-
election every two years
Regional legislatures
There are 23 provinces plus an autonomous federal district
Legal system
Federal judges appointed by a Council of the Magistracy; Supreme Court system both nationally
and in the provinces; national Supreme Court members require the endorsement of two-thirds of
the upper house
National elections
The last legislative election (half of lower house and one-third of upper house) and the
presidential election were both held on October 27th 2019. The mid-term legislative elections will
be held in October 2021 and the next presidential election will be held in October 2023
National government
Alberto Fernández, took office as president for a fouryear term, beginning on December 10th 2019
Main political organisations

Government: Partido Justicialista (PJ, the Peronist party). The Peronist party includes several
factions, the largest of which is the Frente de Todos, (FdT)
Main opposition: The Juntos por el Cambio (formerly known as Cambiemos) alliance, which
includes Propuesta Republicana (Pro); Unión Cívica Radical (UCR); Coalición Cívica (CC)
Key ministers
President: Alberto Fernández
Vicepresident: Cristina Fernández de Kirchner
Cabinet chief: Santiago Cafiero
Economy: Martín Guzmán
Productive development: Matías Kulfas
Defence: Agustín Rossi
Foreign affairs: Felipe Solá
Agriculture : Luis Basterra
Health: Ginés González García
Education: Nicolás Trotta
Public works: Gabriel Katopodis
Labour: Claudio Moroni

Argentina 21
Interior: Eduardo "Wado" de Pedro
Justice: Marcela Losardo
Security: Sabina Frederic
Transport: Mario Meoni
Central bank president

Miguel Angel Pesce

Argentina 22
Recent analysis
Generated on June 21st 2023
The following articles have been written in response to events occurring since our most recent forecast was
released, and indicate how we expect these events to affect our next forecast.
Economy
Forecast updates
Buenos Aires province seeks to postpone debt service
January 17, 2020: Fiscal policy outlook
Event
On January 14th the governor of Buenos Aires province, Axel Kicillof, announced that his
administration would ask creditors for an extension until May 1st for principal repayments of
US$250m that fall due on January 26th.
Analysis
The announcement closely followed the unexpected January 13th statement by the economy
minister, Martín Guzmán, that the central government would not consider a bailout for the
province. This complicated an already challenging debt-service outlook. The provincial
government faces maturities of about US$2.7bn in 2020, of which US$2.1bn are due in the first half
of the year. The first major principal repayment of 2020, for which Mr Kicillof is asking for an
extension, is on the BP21 bond. The governor hopes that the May 1st deadline will give the
province the time it needs to successfully conclude a broader restructuring of provincial debt.
Mr Kicillof said that the province "has the willingness to pay, but lacks the capacity to do so."
A postponement of principal repayments on the BP21 bond—Mr Kicillof has committed to timely
coupon payments—would require the province to reach an agreement with 75% of bondholders
(owing to a collective-action clause). Mr Kicillof must work quickly to negotiate with creditors to
avoid a debt default on February 6th (which includes a ten-day grace period). With such a tight
deadline for negotiations, default risk will be extremely high.
However, in our view, both sides have incentives to act in good faith. Holders of the BP21 bond
include major global financial firms that will be keen to avoid a deterioration in the quality of their
portfolios. Meanwhile, Buenos Aires province will be keen to avoid a hard default, which could
worsen already weak sentiment indicators, damage the provincial economy and potentially have
contagion effects for other sub-sovereign debt. Although there are no cross-default clauses or
Argentina 23
explicit federal guarantees on provincial debt, a default would undoubtedly complicate ongoing
sovereign debt negotiations.
Impact on the forecast

We expect an agreement to be reached between the provincial government and its creditors.
However, Mr Kicillof's mixed track record presents risks. As economy minister in 2013-15,
Mr Kicillof oversaw a sovereign default amid a breakdown of negotiations with holdout creditors.
Conversely, he also oversaw debt renegotiations with the Paris Club in 2014, on terms that were
relatively favourable for the latter. We assume that the pragmatic approach observed during the
Paris Club negotiations will prevail, but there are clear risks to this forecast.

Argentina 24
Exchange rate remains stable despite monetary loosening

January 21, 2020: Exchange rates
Event
On January 16th the Banco Central de la República Argentina (BCRA, the central bank) lowered
the floor of the benchmark Leliq rate, from 52% to 50%. The policy rate has now been cut by a
cumulative 1,300 basis points since December 10th 2019. However, this has not translated into
significant peso weakening.
Analysis
Such a rapid expansion of monetary policy—in conjunction with nominal exchangerate stability
—has been made possible by a confluence of factors. Firstly, real money supply had reached its
lowest level in over a decade in the fourth quarter of 2019. Secondly, capital controls have served
to artificially inflate the demand for pesos (by restricting access to foreign currency). Finally, there
tends to be a seasonal increase in the demand for money in Argentina in the summer months
(December-February), which allowed for the absorption of some of this increased liquidity.
As things stand, the peso remains significantly undervalued relative to its long-term average.
Therefore, the black-market premium for US dollars (which stood at 26% on January 20th) largely
reflects the pricing in of a 30% tax on purchases of dollars imposed by the government in late
December 2019. However, with inflation showing strong inertia, monetary expansion will translate
into further upward pressures on the black-market premium.
In the near term, we expect the monetary authorities to display a preference for continued nominal
peso stability, as sharper currency movements would be damaging to an already uncertain
economic situation. Indeed, exchange houses estimate that the BCRA sold reserves to support
the currency in the week beginning January 13th for the first time since October 2019 (the BCRA
stopped publishing data on its currency interventions since February 2019).
Assuming uncertainty around sovereign debt restructuring subsides by the second quarter of
2020, we expect the BCRA to allow renewed nominal currency depreciation. This will be necessary
to support export competitiveness, as well as to ensure that a continually widening black-market
premium does not complicate the disinflation process (with the unofficial exchange rate acting as a
reference for inflation expectations).

Our forecasts are unchanged. We expect the authorities to allow for gradual peso depreciation in
the medium term, which will also help to contain the black-market premium. However,
expansionary monetary and fiscal policy will not be conducive to the objective of reining in
inflation, and real peso appreciation, nonetheless, will take place over the 2020-24 forecast period.

Argentina 25
Bank deposits recover slightly but lending slump continues

January 31, 2020: Policy trends
Event
The latest data show that bank deposits have posted modest growth in recent weeks. However,
lending to the private sector continues to decline.
Analysis
According to the Banco Central de la República Argentina (BCRA, the central bank), private
sector deposits grew by 3.5% month on month, to Ps4trn (US$66bn) on January 27th. This was
driven by a 5.4% month-on-month increase in peso-denominated deposits; the nominal stability of
the peso encouraged savers to put more of their money in time deposits. However, faster growth
in deposits is likely to have been constrained by monetary loosening. Peso-denominated time
deposits offer an interest rate of 34% currently, down from 39% a month ago and from a peak of
58% in September 2019.
Meanwhile, on January 20th dollar-denominated deposits fell by 1.5% month on month, reversing
most of the gains seen in December 2019. The renewed withdrawal of dollars from the banking
system largely relates to heightened uncertainty around sovereign debt negotiations, exacerbated
by the rising risk of a default by the provincial government of Buenos Aires.
Lending activity continued on a negative trajectory, with loans to the private sector falling by
1.7% month on month, to Ps2.5trn on January 27th. Only three of 11 components of bank lending
showed positive growth during this period.
Although the BCRA's policy rate has lowered significantly in recent weeks (from 63% on
December 10th to 50% currently), interest rates on bank loans have not dropped as sharply.
For instance, personal loans charge an average interest rate of 68% currently, down only
marginally from 70% a month ago. Fundamentally, this weak transmission from the main policy
rate to other lending rates largely reflects the pricing in of a large risk premium on lending by
banks, in view of a recent deterioration in their asset quality. In November 2019 (latest available
data), the ratio of nonperforming loans reached 5%—almost double the 2.7% recorded in the
year-earlier period. Provisioning for bad debt fell to 99% in November 2018, from 126% in year-
earlier period.
Nevertheless, wide lending/deposit ratios have supported profitability. The return on assets
stood firm at 4.9% in November 2019, while return on equity came in at a solid rate of 36.9%.
Solvency risk is also contained, as indicated by a strong capital adequacy ratio of 17.5%.

Our forecasts are unchanged. A significant recovery in both deposits and lending will be possible
only after uncertainty around public debt restructuring subsides.
Government announces timeline for debt negotiations

January 31, 2020: Fiscal policy outlook
Event
On January 29th the Ministry of Economy published a timeline of actions related to external
debt negotiations.
Analysis
The publication of the schedule came on the same day that the Chamber of Deputies (the lower
house) approved the government's "Restoration of the Sustainability of External Public Debt"
legislation. The bill creates a framework under which the executive can enter into debt-swap
arrangements for public securities issued under foreign law. The main caveat of the framework is
that any restructuring must involve an improvement in debt conditions (in terms of principal

Argentina 26
repayments, interest payments, extensions of maturities or some combination thereof). Beyond
that, however, it does not put any restrictions on the kind of debt restructuring that the executive
may pursue. The external debt sustainability bill will be voted on by the Senate (the upper house)
next week, and is expected to come into force shortly thereafter.
Once the framework for negotiations is formally in place, the government outlines a timeline of
events that would help it to meet its long-standing aim of concluding debt negotiations by end-
March.
Timeline for external debt negotiations

(Key dates)
February - Week
Senate debates and approves external debt sustainability bill
1
Economy minister, Martín Guzmán, meets with IMF managing director, Kristalina
Georgieva, in Rome (February 5th)
February - Week
Selection and hiring of information agents
2
Government receives the IMF Mission for Argentina in Buenos Aires (February 12th-
14th)
Mr Guzmán presents the guidelines of the analysis of external debt sustainability to
Congress (February 12th-17th)
February -
Selection and hiring of distribution agents and financial advisors
Weeks 3 & 4
A ten-day period of meetings with external bondholders
Preparation of a report based on the comments of bondholders
Government determines the final structure of the offer that will be made to
March - Week 1
bondholders
Government answers frequently asked questions
March - Week 2 Government formally launches offer to bondholders
Roadshow meetings with creditors
March - Weeks 3
Deadline to accept the offer expires
&4
Government announces results of the offer
Government prepares necessary documentation to execute the offer
Source: Ministerio de Economía.
The publication of the schedule helps to alleviate some uncertainty around the government's plan,
following weeks of virtual silence on the topic. In this context, the second week of February will
be vitally important. Discussions with the IMF will ultimately feed into the government's
presentation of "guidelines of the analysis of external debt sustainability". Simply put, these
guidelines refer to the government's economic programme and the policy steps it will take to
stabilise public debt in the medium term. Deliberations with the IMF on these matters will set the
tone for future negotiations with private bondholders.
Until now, the policies enacted by the government largely have been emergency measures aimed
at stimulating domestic demand, paid for by tax increases. However, these are far from long-term
solutions. Both the IMF and bondholders will need to see credible proposals from Mr Guzmán
about how Argentina can generate its "repayment capacity" if debt-restructuring negotiations are
to be successful.

The agenda presented by the government is clearly ambitious given the short timeframe.
The possibility of delays will be high, owing to the complications in presenting a policy
programme that is viable for both the Argentinian sovereign and its creditors. Ultimately, we do
expect a debt-restructuring arrangement to be hashed out, but the risk of a disorderly default is
extremely high.

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Buenos Aires province averts debt default

February 5, 2020: Fiscal policy outlook
Event
On February 4th the provincial government of Buenos Aires announced that it will make principal
and interest payments totalling US$277m on the dollar-denominated BP21 bond that fell due on
January 26th. With a ten-day grace period to service the debt expiring on February 5th, the
province will narrowly avoid a debt default.
Analysis
The Buenos Aires provincial governor, Axel Kicillof, had previously announced that the
government was not in a position to make the payment, and asked creditors for an extension until
May 1st to service the debt.
However, Mr Kicillof was unable to convince 75% of BP21 bondholders to accept his proposal—a
requisite under the bond's collective action clause. Mr Kicillof had repeatedly tried to sweeten the
deal to bring creditors on board; first he offered higher interest payments, and later said that he
would make 30% of the principal repayment upfront while deferring the remainder until May 1st.
By February 4th the governor was only able to get around 50% of creditors to accept his
proposal. Fidelity investments—the single largest holder of the BP21 bond (with slightly over
25% of the total according to Mr Kicillof)—reportedly refused to countenance an extension for
principal repayments.
Left with no choice and a default looming, Mr Kicillof finally backed down and agreed to service
the BP21 bond in full, using the province's own funds (as the federal government had
categorically rejected a bailout). Although the province did not explain how it would finance these
payments, reports suggest that a Ps9.3bn (US$154m) local-currency bond issue on January 31st
has given the province has some financial breathing room. Mr Kicillof also announced that he will
seek to restructure the remainder of provincial external debt.
On balance, we believe that the decision to service the debt in full is positive. It signals to
investors that a hard default is the least desirable outcome for the government. A default could
have been disastrous for the provincial economy and for ongoing sovereign debt negotiations.
That said, Mr Kicillof's reversal with respect to debt-servicing capacity could present
complications, as it may encourage creditors to take a hardball approach to future debt
negotiations. Any delay resulting from drawn-out negotiations could prove detrimental to the
economic outlook.

We continue to expect both federal and provincial governments to restructure debt with only a
modest haircut. However, the risk of a disorderly default will be ever-present.
December economic data show mixed results

February 7, 2020: Economic growth
Event
The latest data from Instituto Nacional de Estadística y Censos (INDEC, the national statistics
institute) show that industrial production increased modestly in December 2019, while
construction activity fell sharply.
Analysis
Industrial production rose by 1.1% in seasonally adjusted, month-on-month terms and by 1.2% in
year-on-year terms in December. Disaggregated data are only available by sector in non-
seasonally adjusted terms, complicating analysis of the figures. However, eight out of the 16
manufacturing categories posted positive year-on-year growth, an improvement from just three
the month before.
Argentina 28
The food and beverages segment saw rapid growth, of 7.2% in year-on-year terms. A favourable
fishing season led to double-digit increases in fish and fishmeal processing. Agro-industrial
production—oilseed milling in particular—also grew strongly owing to increased output of soy
and sunflower grains. Gains in the agricultural sector also proved beneficial for the production of
machinery and equipment, which rose by 7.9% year on year. Preliminary estimates by the Buenos
Aires Grain Exchange suggest that Argentina is slated for another bumper harvest in 2020, which
indicates that these trends will continue in the near term.
The biggest drags on industrial production were automotives and metal products, which posted
declines of 16% and 18% respectively. According to the Asociación de Fabricantes de
Automotores (ADEFA, the car manufacturers association) domestic sales of motor vehicles
plummeted by 50% year on year in December. Foreign sales of automotives also fell by 17%. The
latter will show some improvement, as demand from Brazil (the destination for two-thirds of
Argentina's automotive exports) picks up. However, domestic demand for motor vehicles will
remain weak amid subdued consumer confidence.
In contrast to industrial production, construction activity fell by 7.3% in seasonally adjusted,

month-on-month terms and by 6.4% year on year in December. Purchases of important
construction inputs, including asphalt, cement, concrete and plasterboard, all fell by double digits
in year-on-year terms. Private-sector construction jobs also fell by 9% year on year in November
(latest available data). Looking ahead, the outlook for an improvement in construction activity in
the near term is bleak. A survey of construction firms conducted by INDEC shows that most
companies expect either stagnation or decline in construction activity in the January-March
quarter, boding poorly for fixed investment.

Argentina 29

The sectoral trends were broadly in line with our economic forecasts, which remain unchanged.
Analysis
EIU Global Forecast - Suleimani's death marks turning point
January 15, 2020
The US decision to assassinate Qassem Suleimani, the commander of the elite Quds Force of
Iran's Islamic Revolutionary Guards Corps, on January 3rd has taken US-Iran tensions to a new
level. At first glance, the US strike appears at odds with the reluctance of Donald Trump, the US
president, to drag the US into a new war in the Middle East. However, from Mr Trump's
perspective, it represents a calculated response to the recent escalation in tensions between the
US and Iran, which culminated in an attack against the US embassy in Iraq by Iran-backed
militia in late December. As the embassy attack illustrates, these tensions have mainly unfolded
in Iraq, a country where both the US and Iran wield significant influence and which represents
the new battlefield between both countries.
The US is rewriting the rules of engagement in the

Middle East
The US drone strike against General Suleimani has two direct consequences for Iran. First, the real
message behind the US attack is that the US has the ability to track the whereabouts of top
Iranian military commanders in real time, possibly through the use of informants that operate
within the Islamic Revolutionary Guards Corps. The US's ability to get past Iranian defences will
be chilling for the Iranian leadership, and Iran will invest a lot of time and effort to strengthen its
counterintelligence capability. Second, the legally dubious assassination of General Suleimani has
set a precedent and rewritten the rules of engagement for all actors in the Middle East. Mr Trump's
decision to kill the general has made every US soldier, diplomat and citizen present in the Middle
East a potential target for Iran. As such, US forces stationed in Saudi Arabia, Bahrain or Iraq are
obvious targets for the Iranian leadership (US troops in Qatar may be safer, given Qatar's good
ties with Iran).
A direct conflict between the US and Iran remains

unlikely
Despite the heated rhetoric, we continue to believe that a direct conflict between the US and Iran
remains unlikely. Mr Trump will be reluctant to open a new military front in the Middle East for
fear of undermining his re-election chances in the November 2020 presidential poll. Meanwhile
Iran's leaders know all too well that the country does not have the military and financial means to
wage a war against the US. That said, the currently high level of tensions between both sides has
complicated communication, and the risk of a miscalculation cannot be ruled out. We estimate that
there is a 25% chance that the US and Iran will be dragged into a direct, conventional war, which
would have devastating consequences for the global economy.
Iran's response has been mild and proportionate

Iran's limited response so far supports our view that the US and Iran will not enter a direct conflict.
On January 8th the Islamic Revolutionary Guards Corps launched strikes against two US military
bases in Iraq. However, the limited nature of the attacks suggests that Iranian military
commanders made every effort to avoid US casualties: the Iranian government warned its Iraqi
counterpart that it would strike US military bases a few hours beforehand (knowing full well that
the Iraqi military would warn the US side to put its soldiers to safety). Iran's limited strikes
therefore achieved two goals: on the domestic scene, they showed the Iranian population that the
country was retaliating against the US; and on the international scene, the limited response
showed that Iran remained wary of triggering a direct conflict with the US. As such, Iran appears
willing to de-escalate the current situation. In a speech on January 8th Mr Trump confirmed that
he was not seeking war either. He mentioned that Iran's strikes would not lead to a US military
response, but rather to a strengthening of US sanctions against Iran (which can only be a
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symbolic move, as US sanctions are already extremely broad and stringent).
Tit for tat will continue in the coming weeks

In the coming weeks US-Iran tensions will remain elevated, and there is a high risk that Iran (or its
proxies) will launch targeted attacks against US interests in the Middle East; such attacks are
likely to take place in countries where the US and Iran support different sides or factions, such as
Yemen, Lebanon, Syria and Iraq. Cyber-attacks (from both sides) are also a distinct possibility.
The US or its allies, such as Israel, could cripple Iranian nuclear facilities or institutions through
the use of computer viruses. Meanwhile Iran also has the capacity to wage cyber-attacks against
US companies; the financial and energy sectors appear the most sensitive, given the importance
that companies in these fields have to the US economy. Should such attacks take place, it is
possible that they would not be made public; the US and Iran would be keen not to appear as
vulnerable, partly for fear of stirring panic within the population.
The EU appears increasingly sidelined in the US-Iran

dispute
The latest escalation in US-Iran tensions illustrates that the EU, a signatory to the Iran nuclear
deal, appears increasingly sidelined in the US-Iran dispute and unable to mediate a compromise
between both sides. This is partly the result of disagreements between core EU member states on
how to move forward with Iran when the UK and eastern European countries are more aligned
with the US, and core EU members such as France and Germany are more willing to defy
Mr Trump. In addition, even within countries that appear to be more on Iran's side, such as
France, support for Iran is far from unanimous (Iran tried to wage a terror attack in France in late
2018). Such a situation does not bode well for the EU's objective to play an increasing role on the
global scene. It also means that US sanctions against Iran will not be lifted any time soon and will
continue to target international businesses willing to trade with Iran.
The global economy is safe, for now

Our 2020-21 global growth forecasts have long reflected our expectations that US-Iran tensions
would remain high but remain short of a full-blown war. As such, we maintain our view that the
global economy will grow by 2.3% in 2020 (up from an estimated 2.2% in 2019). Downside risks to
this forecast remain high, however, especially if a flare-up in tensions leads to the closure of the
Strait of Hormuz, through which about 20% of global oil supplies transit. Oil markets have so far
reflected these fears; on January 6th crude oil prices briefly rose to US$70/barrel, but since then
they have eased back to about US$68/b (the level that they were at before General Suleimani's
assassination). We expect oil prices to remain elevated in the first quarter of 2020, at an average of
US$68/b (up from US$65/b previously). However, coupled with record US oil production, an
expected slowdown in the Chinese and US economies will keep a lid on oil prices in the coming
months. Should US-Iran tensions flare up, however, oil prices could rise to as much as US$90/b,
fuelling a rise in inflation and dampening sentiment. This represents one of the main risks to the
global economy in 2020-21.
World economy: Forecast summary

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Real GDP growth (%)
World (PPPa exchange rates) 3.4 3.3 3.8 3.5 2.8 3.1 3.4 3.6 3.5 3.4
World (market exchange rates) 2.8 2.5 3.2 2.9 2.2 2.3 2.7 2.9 2.8 2.8
US 2.9 1.6 2.4 2.9 2.3 1.7 1.8 2.0 1.8 2.2
Euro area 2.0 1.9 2.7 1.9 1.2 1.3 1.6 1.7 1.6 1.6
Europe 2.0 1.9 2.8 2.1 1.4 1.6 1.8 2.0 1.9 1.9
China 6.9 6.7 6.8 6.6 6.1 5.9 5.7 5.5 5.0 4.7
Asia and Australasia 4.6 4.5 4.9 4.5 3.9 3.9 4.2 4.2 4.0 3.9
Latin Americab 0.1 -0.3 1.8 1.6 0.6 0.9 2.3 2.5 2.6 2.5
Middle East & Africa 2.3 4.8 1.4 1.2 0.2 2.0 2.9 3.1 3.3 3.3
Sub-Saharan Africa 2.7 0.8 2.3 2.4 2.0 2.4 3.3 3.9 4.2 4.5

Argentina 31
World inflation (%; av)b 3.0 3.1 3.2 3.4 3.5 3.6 3.4 3.2 3.1 3.0
World trade growth (%) 2.2 2.1 5.8 3.7 0.8 2.3 3.5 3.6 3.6 3.8
Commodities
Oil (US$/barrel; Brent) 52.4 44.0 54.4 71.1 64.0 65.0 67.0 71.0 73.8 71.0
Industrial raw materials (US$; % change) -15.2 -2.2 20.2 2.2 -8.6 0.5 4.0 3.3 0.8 1.1
Food, feedstuffs & beverages (US$; %
-18.4 -3.5 -0.9 1.5 -4.3 2.4 2.2 0.2 1.3 1.5
change)
Exchange rates (av)
¥:US$ 121.0 108.8 112.1 110.4 109.0 106.9 104.8 101.1 97.6 95.4
US$:€ 1.11 1.11 1.13 1.18 1.12 1.13 1.16 1.21 1.24 1.24
a Purchasing power parity. b Excludes Venezuela.
Buenos Aires improves terms of offer as debt deadline looms

January 29, 2020
The Buenos Aires government has improved its offer to

creditors as it seeks to delay a US$250m coupon
payment on its 2021 bonds that fell due on January 26th.
The provincial government has a ten-day grace period
before falling in default, and has set a deadline of
January 31st for creditors to agree to the refinancing. If
they do not accept, the provincial government must
either convince the national government to stump up the
funds to meet the payment, or enter into default. Amid all
this uncertainty, our forecasts remain unchanged. We
have pencilled in a restructuring of the sovereign's
debts in 2020 involving a 25% haircut on principal; we
also continue to factor in new finance from the IMF. We
assign a very high degree of risk to both assumptions.
Amid reports that acceptance of the reprofiling offer to creditors was extremely low, the Buenos
Aires government has now offered interest payments of US$28.70 per US$1,000 of deferred
capital. Although the improved offer is constructive, many investors will continue to baulk at the
fact that they are being expected to agree to new terms in a very short timeframe without evidence
of a credible economic plan to ensure that the new payment terms are ultimately met. A clear
economic plan is needed at the national level, but details are being held up by negotiations with
the federal government's creditors, including the IMF.
The economy minister, Martín Guzmán, met with Fund officials on January 28th, in what was
described as a positive, productive meeting. But Mr Guzmán has recently stated that his
government would not accept IMF conditions and that its economic policy decisions were its own
to make. This is keeping observers guessing as to the government's intentions with the Fund, and
the negotiation of terms when payments fall due on the US$57bn stand-by arrangement in 2021.
Normally, any "refinancing" of IMF debt takes the form of fresh lending under an extended fund
facility with extensive conditionality. The government seems to be implying that it does not want
the straitjacket of IMF conditions, but without such a policy straitjacket, fresh external private-
sector lending to help Argentina roll over its debts will not be forthcoming and negotiations with
private-sector creditors will almost certainly flounder, leaving the sovereign on the path to
disorderly default. On this basis—and though there are large risks to this assumption—we think
the most likely outcome of Fund negotiations is an EFF, in which the government claims
"ownership" of the conditions eventually hammered out.
Argentina 32
Buenos Aires complicates federal-level negotiations

In the meantime, Buenos Aires's debt problems are a complicating factor. In the not unlikely event
that creditors do not agree terms with Buenos Aires province, then the Buenos Aires governor,
Axel Kicillof will need to go back to the federal government and ask it to reconsider financing the
US$250m payment. Up until now Mr Guzmán has been playing hardball with Mr Kicillof (although
this is perhaps a co-ordinated effort on the part of both men to encourage creditors to take an
unattractive deal). But the federal government will have reason to consider making the payment
after all. The coupon amount is not large, and default could have serious knock-on effects at the
national level. This is not so much related to the nation's debts itself; there are no cross-default
clauses or explicit government guarantees of provincial level debt. But a disorderly default for
Buenos Aires would have a negative impact on finance and investment and would further damage
the economy of Argentina's biggest province, an industrial powerhouse which has already been
struggling for many quarters with recessionary conditions and high unemployment. There would
be knock-on effects for the economic outlook at the national level, all of which would put the
sovereign, and several other provinces, in a weaker position to convince creditors that they have
a credible plan to meet payment obligations on any restructured or reprofiled debt.
Amid all this uncertainty, our forecasts remain unchanged. We have pencilled in a restructuring of
the sovereign's debts involving a 25% haircut on principal; we also continue to factor in new
finance from the IMF in the medium term. We assign a very high degree of risk to both
assumptions. One key risk is timing, and the fact that the government appears, publicly at least, to
be moving slowly on negotiations, despite the fact that some large payments are falling due in the
second quarter of 2020. Another major risk surrounds the government's desire and ability to "go it
alone" without fresh financial assistance from the IMF. In our view, such a position may be
politically desirable from the government's point of view, but is not realistic from a financing
perspective, unless the government is willing to countenance an economy in default conditions.
After the 2001 default, Argentina was in this position for many years. However, the country no
longer has the benefit of the commodity boom, and economic conditions would be very different
in a disorderly default scenario this time around.
How will Latin America be affected by coronavirus?

February 5, 2020
Although uncertainty persists around the eventual path of the novel coronavirus (2019-nCoV)
and its effect on China and the global economy, there is already evidence of an impact on
emerging-market financial markets and on commodities. If past experience is a guide, this
will transmit rapidly to Latin America and, in particular, to South America's large
commodity exporters.
The Economist Intelligence Unit believes that the decline in prices of key commodities for the
region, such as oil and copper, will prove transitory, and some recovery based on our
provisional baseline scenario for the spread of coronavirus in China would be expected in the
second half of 2020.
Even this scenario raises questions as to how much policy space Latin America has to support
growth in the face of weaker demand from China and weaker commodity prices in the near
term. Most Latin American economies are in monetary easing mode but, looking ahead,
currency weakening will complicate policy; space for fiscal stimulus will be even more
limited, with a few exceptions.
For now, downward revisions to our GDP growth forecasts are likely to be limited to countries
most exposed to commodity prices and to demand from China, including Chile and Peru.
However, substantial downside risks to other large economies in the region, including Brazil,
Argentina and Colombia, are clear.
Our China analysts have set out four scenarios for the economic impact of coronavirus. These
assess the date by which the outbreak will come under control within China, and range from an
optimistic scenario that estimates a controlled outbreak by end-February, to a "nightmare"
scenario in which the outbreak is not contained this year. Under the baseline scenario that we
provisionally expect to adopt in our next forecasting round, the virus will come under control in
China by end-March, and our 2020 real GDP forecast for China will be revised down, from
5.9% to 5.4%.
Argentina 33
China sneezes, Latin America catches a cold

The disruption to China's economy from coronavirus will have direct and indirect impacts on Latin
America this year. We expect coronavirus to dampen China's consumption, private investment,
and export and import growth, which will have a direct impact on Latin American economies that
rely on trade and investment with China to drive growth. Among Latin America's six big
economies, this reliance varies dramatically. Mexico's exports to China represent less than 2% of
its total; in Peru and Brazil, exports to China account for over 25% of all exports, and in Chile they
account for over 33% of the total. However, the direct impact will also depend on how important
trade is to these economies, and again this varies substantially among countries. Trade accounts
for only around 30% of GDP in Brazil and Argentina; in Peru it accounts for almost 50% of GDP
and in Chile it accounts for almost 60% of GDP. On balance, Chile and Peru appear to be most
exposed to the direct impact of weaker import demand from China.
There will be indirect impacts too from commodity prices, exchange rate movements, and the
uncertainty effect on business investment both globally and within Latin America. China is a
major driver of demand for oil and for hard commodities such as copper, and its major
manufacturing export centres are being disrupted by coronavirus. This has been reflected in a
substantial drop in oil and copper prices in recent weeks. From their recent mid-January peaks,
copper prices have fallen by over 10%. Meanwhile, from its December 2019 peak, Brent crude has
fallen by around 15%, or US$10/barrel, to US$55/barrel. This will be damaging for nations like
Chile, where copper accounts for a whopping 48% of export earnings; Colombia, where oil
accounts for 40% of exports; and Peru, where copper accounts for close to 30% of exports
(although the effects will be partly outweighed by gold export earnings; gold accounts for a
further 20% of Peru's exports, and prices are high and rising amid a flight to safety).
Brazil has a more diversified export basket than many countries in the region, but still relies on
primary commodities for almost half of its exports. A large part of these exports are in the form of
soft commodities, which have so far been more resilient than hard commodities in the face of
coronavirus concerns (soybean prices fell by around 5% in January). However, iron ore accounts
for about 10% of Brazil's exports, and prices tumbled at the start of February as coronavirus
concerns ratcheted up.
Weaker currencies and a policy dilemma

Investor fears around Latin America's exposure to weaker Chinese demand and commodity prices
are evident in currency movements in recent weeks. There are certainly some domestic factors at
play (such as Chile's political turmoil and a fall in the policy rate to record lows in Brazil). However,
depreciation pressures have clearly been building since the start of the year (they are in fact more
evident in Latin America than in many of China's Asian trading partners), and will at least partly
reflect concerns around the region's vulnerability to a weaker global economy and weaker

Argentina 34
commodity prices in particular. The main exception among the big economies has been Mexico,
where the peso has in the past few days weakened only very mildly, following an extended period
of strengthening related to the boost from the recent approval in the US Congress of the US-
Mexico-Canada Agreement (the successor to the North America Free Trade Agreement). Mexico
is much less exposed to China and to commodities than its regional peers. Oil accounts for only
slightly more than 5% of export earnings and for less than 5% of fiscal revenue. Trade with China
is weak and, in theory, Mexico could see some export increase if US importers seek to adapt their
supply chains further away from China (although ultimately, we think that Mexico's prospects will
be limited by still sluggish US manufacturing and goods import demand).
For most of the region, currency weakening will complicate the policy response to what will be a
poor first quarter. It is clear that there is limited space for fiscal stimulus in most economies in the
region. Owing to reforms around the time of Latin America's 2015-16 recession to raise revenue or
cut spending, reliance on fiscal revenue from commodities has been lessened in much of the
region. However, this does not mean that there is scope for fiscal stimulus. In Brazil, Colombia and
Argentina, although fiscal results have been improving, public debt ratios remain high (to varying
degrees) and governments are still in consolidation mode. In Mexico, although the public finances
appear relatively solid (despite an upward drift in the debt/GDP ratio), the government has little
scope to boost spending without scaring investors who are already extremely wary of policy
under the president, Andrés Manuel López Obrador. The main exceptions are Chile, and to a
lesser extent Peru, where public debt ratios and fiscal deficits are relatively low, providing some
scope for fiscal stimulus. Chile has, of course, already committed to a big rise in spending in
2020 in response to the mass public protests of late 2019.
Despite these exceptions, a complicated fiscal picture will place a burden on monetary policy to
stimulate the economy. Latin America's many inflation-targetting central banks now have a hard-
won reputation for successfully bringing about price stability (and inflation expectations remain
well anchored so far). However, depreciation pressures will—to the extent that they persist or
intensify—narrow the scope for further monetary easing after sustained rate cuts over the course
of 2019. Although we still expect most central banks in the region to remain in cutting mode,
reductions will be less steep than in 2019, and will be highly data-dependent. As in 2015-16, there
is a risk that Latin American central banks will actually need to undertake procyclical monetary
tightening to counter currency pressures (although this is not our baseline forecast). In Peru and
Chile, which appear the most exposed to the economic impacts of coronavirus, we expect rates to
remain on hold, partly reflecting concerns over the impact of currency weakening pressures
on inflation.
A temporary and relatively mild impact, but with large

downside risks
Currency and commodity price movements highlight market concerns over the potential impact of

Argentina 35
coronavirus, and we share these concerns. The big commodity exporters of South America are
clearly vulnerable. However, it should be emphasised that—assuming our baseline forecast
around the path of coronavirus prove correct—the economic effects will be temporary. After a
very weak first quarter, we would expect recovery to gather pace in the second half of 2020, and
for pent-up demand to produce a rebound in China's import demand and in commodity prices.
This recovery will not be enough to prevent a downgrade to our China forecasts or a downward
revision to our 2020 commodity price forecasts. However, it means that in vulnerable economies in
the region, such as Chile and Peru, we are unlikely (for now) to make coronavirus-related
downward revisions of more than 0.1-0.3 percentage points to our 2020 GDP forecasts. There is,
however, a strong risk that these assumptions around the spread of coronavirus ultimately prove
too benign, and we will be following events closely in coming weeks.
EIU Global Forecast - Coronavirus threatens global growth

February 11, 2020
Economic performance was weak across the G7 and BRICS countries (Brazil, Russia, India,
China and South Africa) in the fourth quarter of 2019. This poor outturn reflects sluggish
global growth throughout last year due to the combined effect of global trade tensions; a sharp
deceleration in real GDP growth in the US, China and India; renewed volatility in emerging
markets; and political uncertainty in a number of EU countries. In addition, since the start of
2020 new risks have emerged for global growth as a novel coronavirus has hit China.
China's economy was slowing before the coronavirus

epidemic started
In China, the world's second-largest economy, quarterly growth picked up to 1.5% in the fourth
quarter of 2019, from 1.4% in the third quarter, as the conclusion of a first-phase US-China trade
deal at the end of 2019 helped to alleviate part of the uncertainty that businesses and consumers
were facing. The Chinese economy will face severe strains in the coming months, and growth will
slow much further. A novel coronavirus originating in Wuhan, a city of 11.3m people in central
Hubei province, has spread to all provinces in mainland China and overseas. The Chinese
authorities are taking unprecedented quarantine measures to halt the spread of the pathogen,
which is likely to have consequences on the global economy. The suggested case fatality rate had
stabilised, at 2.2% as at February 1st; nevertheless, the risk of virus mutation and of heightened
transmission during the post-Chinese New Year travel period, and strains on the Chinese
healthcare system are grounds for concern. There is a risk that the coronavirus will spread to
countries that do not have the resources to implement robust quarantine policies. The Economist
Intelligence Unit's baseline scenario is that the public health emergency in China will be brought
under control by end-March. This is based on the latest scientific studies and comparisons with a
similar coronavirus outbreak (severe acute respiratory syndrome, or SARS) in 2002-03.
We have revised China's growth downwards, to 5.4% in

2020
On the assumption that the spread of the virus will be under control by end-March, we are
lowering our real GDP forecast for China in 2020 to 5.4%, from 5.9% previously. The slowdown will
be concentrated in the first quarter of 2020, when economic expansion will drop to about 4% year
on year. If the coronavirus is not under control by March, the effect on GDP growth will be
greater. We expect strong government stimulus measures to prop up the economy, but it is
unclear how much these measures will mitigate the negative effect of the coronavirus on China's
output. A drop in the growth of the world's second-largest economy will have an impact on the
global economy as travel restrictions halt flows of Chinese tourists and the country's demand for
commodities slows. We have revised our global growth forecast for 2020 downwards by
0.1 percentage points, to 2.2% (from 2.3% previously, at market exchange rates). Crude oil prices
have fallen by about US$10/barrel since mid-January, owing to coronavirus-related fears (China is
the single largest source of new oil consumption). However, we expect oil prices to remain at
about US$60-65/b, provided that the virus remains contained in the coming weeks. Should
conditions deteriorate, or if the epidemic spreads globally, dated Brent Blend prices could dip by
another US$3-5/b.

Argentina 36
The US economy is slowing

Among the G7 countries, the US recorded the fastest rate of quarterly growth in the fourth quarter
of 2019, at 0.4%. This represents a deceleration from third-quarter growth, as the US economy
began to show signs of strain in the final months of the year. Rising production costs and slowing
external demand weighed on business profits; as a result of this, as well as of deep uncertainty
surrounding the direction of US trade policy, business investment slowed sharply over the course
of the year. Conversely, consumer spending remained firm, supported by continued job creation
and an acceleration in wage growth. However, the latest labour market data show that the pace of
job creation slowed sharply in December, and we believe that the labour market will soften further
in the coming months as business investment remains weak. We estimate that US real GDP growth
slowed modestly in 2019, to 2.3%, and forecast that it will continue to slow in 2020, to 1.7%.
Growth has dropped in Japan, but it is rebounding

slightly in India
In Asia, we believe that India and Japan respectively recorded the best and the worst rates of
quarterly growth among G7 and BRICS countries in October-December. Over this period we
estimate that India's real GDP grew by 1.6% quarter on quarter, but this apparently strong headline
figure was artificially boosted by the dismal performance of the Indian economy in the previous
quarter (1.1% growth quarter on quarter), amid weak consumer sentiment and tepid investment.
Nevertheless, a series of government stimulus measures, coupled with a low-interest-rate
environment, are likely to spur demand and investment in 2020 and to cause a rebound in full-year
real GDP growth, to 6.1% (up from an estimated 4.9% in 2019), provided that the coronavirus
epidemic does not spread to India. Meanwhile we estimate that Japan's real GDP contracted by
1.7% in the fourth quarter of last year, as a result of an increase in the consumption tax rate in
October. Consumer spending will remain subdued in the first half of 2020 as consumers adjust to
the higher prices of goods. However, the hosting of the Olympic and Paralympic Games in Japan
in July-September will provide some support to the economy, and we forecast that real GDP
growth will average 0.3% in 2020 if the coronavirus does not derail these events.
EU economies are facing strains, and growth remained

sluggish in late 2019
Among EU countries, performance remained poor in the fourth quarter of 2019; real GDP growth in
the euro zone slowed to 0.1% (seasonally adjusted), from 0.3% in the third quarter. Meanwhile the
performance of the three biggest euro zone economies was mixed. Italy—and to a lesser extent
France—pulled down regional growth, with real GDP contracting by 0.3% and 0.1% respectively,
while Germany's continued to expand, by an estimated 0.2%, as trade-related uncertainty subsided
slightly. The downturn in the industrial sector seems to be bottoming out, with trends in
electronics and in machinery and equipment suggesting that the decline in manufacturing output
is decelerating, albeit slowly. Moreover, we expect global trade growth to accelerate in 2020 as a
consequence of monetary policy easing and a stabilisation of geopolitical tensions. We also
anticipate a recovery in the auto industry at the global and European levels. Meanwhile we
estimate that growth remained lacklustre in the UK, at 0.1% quarter on quarter, as a result of
Brexit-related uncertainty.
World economy: Forecast summary

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Real GDP growth (%)
World (PPPa exchange rates) 3.4 3.3 3.8 3.5 2.8 2.9 3.4 3.6 3.4 3.4
World (market exchange rates) 2.8 2.5 3.2 2.9 2.3 2.2 2.7 2.9 2.8 2.8
US 2.9 1.6 2.4 2.9 2.3 1.7 1.9 2.0 1.8 2.2
Euro area 2.0 1.9 2.7 1.9 1.2 1.2 1.6 1.7 1.6 1.6
Europe 2.0 1.9 2.8 2.1 1.4 1.5 1.8 2.0 1.9 1.9
China 6.9 6.7 6.8 6.6 6.1 5.4 5.7 5.5 5.0 4.7
Asia and Australasia 4.6 4.5 4.9 4.4 3.9 3.6 4.2 4.2 4.0 3.9
Latin Americab 0.1 -0.3 1.9 1.7 0.8 1.1 2.3 2.6 2.6 2.6

Argentina 37
Middle East & Africa 2.3 4.9 1.3 1.0 0.2 1.9 2.8 3.1 3.3 3.3
Sub-Saharan Africa 2.7 0.8 2.3 2.4 2.0 2.2 3.3 3.8 4.1 4.4
World inflation (%; av)b 3.0 3.1 3.2 3.4 3.5 3.8 3.4 3.3 3.1 3.0
World trade growth (%) 2.2 2.1 5.8 3.7 0.8 2.2 3.4 3.7 3.8 3.8
Commodities
Oil (US$/barrel; Brent) 52.4 44.0 54.4 71.1 64.0 63.0 67.0 71.0 73.8 71.0
Industrial raw materials (US$; %
-15.2 -2.2 20.2 2.2 -8.6 0.5 4.1 3.2 0.8 1.1
change)
Food, feedstuffs & beverages (US$; %
-18.4 -3.5 -0.9 1.5 -4.3 2.6 2.2 0.0 1.3 1.5
change)
Exchange rates (av)
¥:US$ 121.0 108.8 112.1 110.4 109.0 106.7 104.6 101.1 97.6 95.4
US$:€ 1.11 1.11 1.13 1.18 1.12 1.13 1.16 1.21 1.24 1.24
a Purchasing power parity. b Excludes Venezuela.

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Generated on June 21st 2023

Hong Kong Geneva

This report can be accessed electronically as soon as it is published by visiting store.eiu.com or by

Symbols for tables

Outlook for 2020-24

Data and charts

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Political and economic outlook

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Key changes since December 6th

The month ahead

Major risks to our forecast

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Outlook for 2020-24

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Data and charts

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Annual trends charts

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Quarterly trends charts

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Monthly trends charts

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Comparative economic indicators

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Weather in Buenos Aires (altitude 27 metres)

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Main political organisations

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Central bank president

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Impact on the forecast

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Exchange rate remains stable despite monetary loosening

Impact on the forecast

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Bank deposits recover slightly but lending slump continues

Impact on the forecast

Government announces timeline for debt negotiations

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Timeline for external debt negotiations

Impact on the forecast

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Buenos Aires province averts debt default

Impact on the forecast

December economic data show mixed results

In contrast to industrial production, construction activity fell by 7.3% in seasonally adjusted,

Country Report January 2020 www.eiu.com © Economist Intelligence Unit Limited 2020

Impact on the forecast

The US is rewriting the rules of engagement in the

A direct conflict between the US and Iran remains

Iran's response has been mild and proportionate

Tit for tat will continue in the coming weeks

The EU appears increasingly sidelined in the US-Iran