Economic context

Economic Situation

After the year 2000 and the serious crisis that was suffered, the economy recovered quickly and then there were also stages of recession and slowdown as well as rebounds.

After the country’s low growth in 2015, Argentina returned to recession in 2016, suffering a -1.8% drop in growth. However, following the negative data, the IMF expects to see growth of + 2.7% this year in 2017.

Although the Political Risk in Argentina is quite a bit, the country has significant potential in raw materials (lithium, the second World’s shale gas, the fourth oil reserve). In the year 2016, Argentina had to face great challenges such as to bear an inflation of 40%, a severe unemployment and a great drop in consumption. It was promised to combat poverty but not only it was not fought but also increased.

Of course, the citizens protested against this situation and the unions organized mobilizations against the flood of unemployment. Unemployment increased by around 7% in the last year 2016, so that malnutrition has also suffered severe growth and more than 30% of the population lives in poverty. In this year also, President Macri sought to promote foreign investment, and what did ?, tried to attract 31,000 million euros in investments by gathering in a huge forum innumerable directors of large foreign companies.

This adjustment also sought to reduce the cost of the country’s agricultural exports.

WHAT IS EXPECTED IN 2017?

1.Increased growth in 2017, driven mainly by capital investment.

2. It is possible that the public deficit will recover in the short term.

3. It is possible that the current account balance will deteriorate as a result of the expected increase in imports

4. A strong improvement in the business environment.

Increased growth in 2017, driven mainly by capital investment.

In 2017 capital investment is expected to be the main engine of growth. The interest of investors in the country will decrease after the liberalization of capital controls but instead there will be a small improvement in the business environment as foreign capital inflows are forecast in the sectors of the energy industry and the manufacture of cars .

On the other hand, state-owned enterprises may have more favorable access to credit in foreign markets, thus increasing their production capacity, however, forecasts of a possible fall in inflation will continue to be conditioned by the results of The next wage negotiations.

Possible short-term recovery of the public deficit

It is possible that in 2017 the trend that prevailed in 2016 will continue despite the measures of budgetary adjustments and elimination of subsidies in the electricity, gas and transport that were carried out, that is to say, that the public deficit will undergo small growths.

The budget for 2017 sent to Congress is based on a primary deficit target of 4.2% of GDP, compared with 3.3% of GDP previously announced.

It is possible that the current account balance will deteriorate as a result of the expected increase in imports

The balance of services in Argentina and its trade is likely to improve, thanks to the growth in the number of tourists expected. As for the foreign trade, as we commented the current account deficit is likely to deteriorate as a result of the dynamism of imports (capital goods in particular), all of them driven by the increase in capital investment.

On the other hand, it is still dependent on energy imports due to the scarcity of investment in this sector and all this, despite the abundance of natural resources (oil and gas).

A strong improvement in the business environment is expected.

Mauricio Macri and his government team are doing everything in their power to try to reduce economic distortions and put the economy on the path to sustainable growth.

This process is not easy at all because, given the country’s poor management, the adjustment process involving austerity measures (subsidy reductions, in particular) combined with the high rate of inflation caused by The devaluation of the peso, have contributed to the fall of the popularity of the president.

The business environment has improved drastically through the removal of barriers to import and export. This phenomenon has also occurred thanks to the resolution of the conflict of the vulture funds, the return of dialogue with ICSID (International Center for Settlement of Investment Disputes).

MAJOR MACRO ECONOMIC INDICATORS

STRENGTHS AND WEAKNESSES

INDICATORS OF INTERNATIONAL TRADE