Country Report Argentina June 2009

Outlook for 2009-10

• The June 2009 congressional poll is expected to leave Cristina Fernandez de Kirchner a lame-duck president until the 2011 general elections; mounting social and political tensions carry the risk that she will fail to see out her term.
• Global recession will combine with domestic political and policy uncertainty, causing trade conditions to weaken and investment to fall. As a result, the economy is forecast to contract by 3.5% in 2009 and to grow weakly in 2010.
• Although the government will be able to remain current on its "agreed" debt obligations ahead of the June election, the outlook for the public finances and political stability will darken thereafter, raising the risk of a new default.
• Weaker agricultural export earnings and recession will narrow the primary surplus to 0.9% of GDP in 2009, leading to an overall budget deficit of 1.2%, with only a modest improvement in 2010.
• Unofficially measured inflation will ease to 10-15% in 2009 as private demand falls, allowing the margin between the unofficial and official rate to narrow. The official rate is likely to end both 2009 and 2010 around 9%.
• The peso will undergo a depreciation after the end-June election, assuming some capital flight and a policy-led adjustment designed to boost fiscal revenue and prevent the current-account surplus from narrowing too much.

Monthly review

• With the possibility that the government will lose its congressional majority in the upcoming election growing, the government has suggested that a loss would lead to political and economic crisis, raising fears over political stability.
• However, many have interpreted the Kirchners' warnings as a scare tactic intended to mobilise supporters in an election in which the government stands to lose its slim majority.
• The fiscal outlook continues to worsen. Deteriorating economic conditions are increasingly taking a toll on fiscal revenue, but electoral pressures have made the government reluctant to reduce spending accordingly.
• The peso has continued to weaken in the past month, to Ps3.74:US$1 in late May (an 8.2% depreciation on end-2008). However, despite periodic fluctuations, reserves are still essentially unchanged on their end-2008 level.
• Available data for 2009 all point to an economic slowdown, but a divergence between official data and private-sector estimates has produced some uncertainty over how quickly and by how much.
• Growth in the economic activity index slowed to 2.7% in March, while industrial production contracted by 1.4% in April.

SOURCE: Country Report

This report covers the following industry codes:
SIC Code: 60;1
NAICS Code: 52;11