Country Forecast Argentina October 2017 Updater

Country Forecast Argentina October 2017 Updater

  • October 2017 •
  • Report ID: 325614


  • The president, Mauricio Macri of the centre-right Propuesta Republicana, will press ahead with a programme of economic policy adjustment in an effort to eliminate distortions and return the economy to sustainable growth. The adjustment process, which is involving politically unpopular austerity measures, is proving difficult, and the risk of social unrest will therefore remain significant for much of the forecast period.
  • Given the president's minority position in Congress, and the priority given to urgent macroeconomic reforms, there is likely to be only limited progress on the pursuit of legislation that would successfully address longstanding institutional weaknesses and structural constraints to growth. Comprehensive reforms to streamline the bureaucracy, reduce corruption, and enhance the effectiveness and independence of the judiciary will be slow. Furthermore, The Economist Intelligence Unit does not expect meaningful advances-at least in the short term-on a structural reform agenda (incorporating tax and labour market reform) that could improve long-term potential growth rates.
  • Real GDP will accelerate from an estimated 2.7% in 2017 to 3.3% in 2018. In 2019-20 we expect growth to soften to below 3% per year, largely reflecting headwinds in the form of a projected weakening of Chinese import demand in 2019 and a cyclical downturn in the US economy in 2020. We then expect a moderate recovery to take hold in 2021-22. However, some aspects of the policymaking environment will remain suboptimal, with labour-market reform and a comprehensive fiscal reform to address these remaining low on the agenda.
  • Amid weaker terms of trade and a rapid rise in imports drawn in by economic recovery, the current-account deficit will widen in 2018-19. However, currency adjustment should gradually bolster the current account as a weaker peso starts to boost goods and services exports and rein in imports. We also expect the country's ability to finance moderate current-account deficits to improve over the forecast period, assuming that capital inflows pick up as investor confidence in the Macri administration grows.
  • Argentina's GDP per head is among the highest in the region and, combined with improved access to credit, moderate rates of economic growth in the medium term will boost purchasing power and create market opportunities. Still-high poverty rates and income inequality will restrict the pool of consumers, but to a lesser extent than in many other countries in the region.


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