Argentina Economic Outlook. Fourth quarter 2020

Summary

We expect a 13% drop in 2020s GDP. Although activity is slightly improving, high-frequency data is showing a sluggish recovery for 2H20. In 2021, we expect activity to grow by 5.5%. A successful debt negotiation should open a window to carry out structural reforms that lead the country to a sustainable growth path.

Key points

• Key points:
• The global recovery should gain momentum in 2021. The vaccines approval and distribution would allow a progressive relaxation of social distancing measures over the next year. Developed economies might get treatments before developing ones, slightly delaying the activity upturn in the last ones.
• Argentina’s GDP will fall 13.0% and the unemployment rate will reach 14% in 2020. 2Q20 economic data registered a 19.1% YoY contraction, in line with expectations. Monthly data for 3Q20 shows that the recovery has stalled since July. In 2021, activity will grow by 5.5%, mostly explained by the reinstatement of activities, but we expect an unemployment rate of 15.4%.
• The primary fiscal deficit will reach 8% of GDP in 2020, due to a sharp drop in tax collection (resulted from the economic recession and the foreign trade contraction), together with a significant expansion in primary spending to contain the impact of the pandemic. We expect a 5.4% deficit in 2021.
• Inflation remained below expectations in 2020. The recession, restrictions on mobility, freezing of public utility rates and the unwillingness to adjust the exchange rate appear to be the main factors of this lower than expected level. We expect 2020 inflation to be 39%, while foreseeing an acceleration for next year to 50% YoY. The risk balance is clearly slanted to the upside due to the magnitude of the exchange rate pressures and the current monetary overhang.
• The debt restructuring with private creditors concluded with a 99% acceptance. The government has a 4-year window to stabilize the economy and carry on structural reforms. However, this does not seem to be enough to resume the growth path, to do so, the government also needs to reach an agreement with the IMF, along with a clear signal of its multi-year economic program.

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