Country Report Argentina April 2015

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Country Report
Argentina
Generated on August 15th 2019

Economist Intelligence Unit
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ISSN 2047-4237
Symbols for tables

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Argentina 1
Argentina
Forecast
Highlights
Outlook for 2015-19

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

10 Annual data and forecast
11 Quarterly data
12 Monthly data
13 Annual trends charts
14 Quarterly trends charts
15 Monthly trends charts
16 Comparative economic indicators
Summary
16 Basic data
18 Political structure
Recent analysis
Politics
21 Forecast updates
23 Analysis
Economy
29 Forecast updates
33 Analysis
Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Argentina 2
Highlights
Editor: Fiona Mackie
Forecast Closing Date: April 2, 2015
Outlook for 2015-19

A weak economic outlook and a lingering political scandal are raising risks to political stability
during the last year in office of the president, Cristina Fernández de Kirchner.
With a presidential election due in October, The Economist Intelligence Unit assumes that a
more market-friendly administration will take office in December 2015, working to reduce
economic distortions.
The sovereign remains in default, and this will add to the government's political challenges as
its support wanes amid high inflation and still-weak economic activity.
Commitment to policy tightening is weak, and our forecasts now assume that difficult fiscal,
monetary and currency adjustments will have to wait until a new government takes office at the
end of 2015.
We expect GDP to register mildly positive growth in 2015. Domestic demand will be constrained
this year by continued uncertainty over the legal and regulatory environment, and by lingering
fears of a currency crisis.
In the medium term, macroeconomic policy tightening, along with peso adjustment, will
eventually start to have a beneficial impact on net exports and pave the way for stronger
medium-term growth approaching 4%.
We assume that after a 33% nominal depreciation in 2014, currency adjustment under the
heavily managed float will continue in coming years, helping to reverse the accumulated real
appreciation of the peso of the past five years.
Review
Mauricio Macri, the mayor of the capital city, Buenos Aires, and leader of the centre-right Pro
party is gathering momentum in the presidential race. Polls now place him ahead of Daniel
Scioli, the chief Peronist party candidate.
An appeals court has dismissed a criminal case in which Ms Fernández is accused of
conspiring to cover up a fatal bombing in Buenos Aires in 1994. The decision will bring some
relief to the beleaguered government.
The government has raised Ps5bn (around US$575m) in new local bonds, and at the same time
announced new spending measures in an effort to boost consumption ahead of the general
election in October.
According to the latest official data, GDP grew by 0.4% year on year in the fourth quarter of
2014, producing full-year GDP growth of 0.5%.
The relatively positive GDP result is at odds with other available economic indicators and with
most private estimates for the year, adding to existing concerns over the quality of GDP data
published by Argentina

Argentina 3
Outlook for 2015-19

Political stability
The president, Cristina Fernández de Kirchner, is not able to run for another term in the general
election on October 25th, but is nonetheless in campaigning mode as she seeks to secure a good
position for her allies in Congress—and as she attempts to secure her legacy. This legacy is,
however, under threat from a weak economy, and from the lingering effects of a political scandal
that shocked the political establishment earlier this year. The scandal surrounded the death in
January of Alberto Nisman, a federal prosecutor, in mysterious circumstances days after formally
accusing the president of conspiring with Iran to cover up the latter's involvement in the 1994
bombing of a Jewish centre in the capital, Buenos Aires—the country's largest ever terrorist
attack.
Investigations have still not established whether Mr Nisman committed suicide or was murdered,
but opinion polls suggest that a majority of the public believes that the latter is the case,
highlighting a clear lack of faith in government and state institutions. Ms Fernández's opinion poll
ratings have started to recover after falling sharply in the immediate aftermath of the scandal,
aided by a court decision to dismiss Mr Nisman's accusations. Nonetheless, public frustration
over a lack of answers regarding Mr Nisman's death—as well as the continued failure to bring the
perpetrators of the 1994 bombing to justice—will heighten the risk of social unrest.
Even before the Nisman affair, the political outlook had been clouded by the state of the economy.
Devaluation pressure has persisted and wage demands have skyrocketed amid rampant inflation.
In this context—and given the country's strong tradition of protest and powerful unions—risks to
political stability will be high in the run-up to the October 2015 presidential poll. Our assumption
of a more market-friendly administration from December 2015 that will work to reduce economic
distortions suggests that the risk of destabilising protests will gradually subside. However, the
adjustment process will be a difficult one involving politically unpopular austerity measures, and
the risks of social unrest will therefore remain significant for much of the forecast period.
Although our assumption of a more market-friendly administration suggests that the quality of
policymaking will improve in the medium term, this is unlikely to extend to a weakening of the
executive's extraordinary powers. Reforms that would successfully address long-standing
institutional weaknesses (highlighted once again by the Nisman affair) will also remain unlikely,
and any attempts to strengthen the bureaucracy will founder on political resistance in Argentina's
clientelist political system. Combined, these factors will limit the quality of policymaking
throughout the forecast period.

Argentina 4
Election watch
The Economist Intelligence Unit has long assumed that a candidate from Argentina's dominant
Partido Justicialista (PJ, better known as the Peronist party) would win the presidential election
this year, but there are growing risks to this assumption. Of the three main candidates in the race,
two are from the Peronist party. One is Sergio Massa, a congressman who founded an anti-
government Peronist faction to contest the October 2013 mid-term elections and emerged as a
leading figure in the opposition movement. The other is Daniel Scioli, the governor of Buenos
Aires province and a popular politician who has managed to remain a part of the president's
Frente para la Victoria (FV, a faction of the Peronist party) despite tricky relations with Ms
Fernández.
However, Mr Massa's star has faded somewhat in recent months, while the main non-Peronist
challenger, Mauricio Macri, the mayor of Buenos Aires and leader of the centre-right Propuesta
Republicana (Pro) party, has gained ground amid the turmoil surrounding the Nisman scandal.
Crucially, Mr Macri has also managed to secure an alliance with the Unión Cívica Radical (UCR),
the country's second-largest party, which will give him the nationwide presence he currently lacks
(his Pro party is popular only in the capital). Mr Scioli, meanwhile, must tread a difficult path. He
must secure centrist votes to win the presidency, but if he distances himself from Ms Fernández
too soon, he risks losing the benefits of incumbency (which are important in Argentina's
clientelist political system). On balance, we still believe a victory by Mr Scioli to be the most likely
outcome of the presidential race, but the election could be close, and a second round vote in late
November currently seems likely.
Crucially, all three main presidential candidates espouse more liberal, business-friendly policies
than the current government (even Mr Scioli, who is considered a pragmatist and whose alliance
with Ms Fernández is thought to be something of a marriage of convenience). However, the
increasing possibility of victory for Mr Macri, who espouses the most orthodox economic policies
of the main candidates, suggests some upside risks to our economic forecasts from 2016.
International relations
The Fernández government is looking to strengthen ties with China as it seeks new sources of
foreign direct investment (FDI) and debt finance, and has sealed a series of investment accords
with the country (particularly in infrastructure) over the course of recent months that should
cement China's position as a strategic partner. On top of these investment deals, in mid-2014
China agreed a three-year currency-swap arrangement worth US$11bn that has bolstered the
foreign reserves and given the government a life line as it seeks to avoid a currency crisis.
Meanwhile, relations with the US remain at a low ebb following last year's sovereign default,
which was the consequence of Argentina's failure to abide by the terms of a New York court
ruling. Default renders recent attempts to resolve a series of disputes in order to access external
credit essentially useless. Among other things, these efforts have included an agreement with the
Paris Club to restructure outstanding defaulted bilateral debt and the resolution of a series of
claims involving the World Bank's International Centre for the Settlement of Investment Disputes
(ICSID). The Fernández administration has now abandoned such efforts, but we assume that the
incoming administration will work from 2016 to exit default (by arriving at a deal with holdout
creditors) and normalise relations with creditor countries, suggesting improved relations with the
US and Europe in the medium term.

Argentina 5
Policy trends
We have long considered a substantial tightening of macroeconomic policy as necessary to
reduce inflation, improve external competitiveness and avoid an eventual balance-of-payments
crisis. However, the Fernández administration is clearly reluctant to make these adjustments,
which involve difficult austerity measures. With elections approaching and the foreign reserves
recovering (temporarily at least) as a result of the currency-swap deal with China, our forecasts
now assume that these adjustments will have to wait until a new government takes office at the
end of 2015.
In the meantime, fiscal policy will remain expansionary, growth in the monetary aggregates will
accelerate, the currency will appreciate in real terms (although some nominal depreciation will
undoubtedly continue), and the government will remain reliant on a host of controls to prevent a
run on the currency. Under our assumption that a more market-friendly administration will take
office and work quickly to tackle distortions, we expect a substantial fiscal and currency
adjustment in 2016, combined with efforts to rein in nominal wage growth. In the short term, this
will subdue activity. However, this will be rewarded with a boost to investor confidence, assuming
that the new government works to exit default (eliminating the foreign-financing constraint) and
strengthen confidence in rule of law eroded by years of ad hoc, discretionary policy
interventionism under Ms Fernández. Combined with macroeconomic adjustment and a gradual
removal of foreign-exchange and import controls, these policies should set the economy on a
more solid long-term footing.
Some aspects of the policymaking environment will remain tricky under any government, with
labour-market reform and a comprehensive fiscal reform likely to remain low on the agenda. There
are, moreover, strong risks to our forecasts, particularly in a context of ongoing US dollar
strengthening, which has seen substantial currency adjustment in Argentina's trade partners,
such as Brazil, and worsened an already difficult trade outlook. In this context, the risk of a major
currency devaluation in the short term cannot be discounted.
Fiscal policy
After widening from 1.9% of GDP in 2013 to 2.5% of GDP in 2014, we expect the fiscal deficit to
widen further in 2015 (an election year), to 3.6% of GDP. We assume that the deficit will narrow
thereafter (to an average 1.5% of GDP in 2016-19) as a new government works to reduce economic
distortions by tightening policy. Given the government’s failure to put the 2001 debt default
behind it, and given its latest sovereign default in July 2014, the fiscal and financing outlook is in
far worse shape than these moderate deficits suggest. Although this was not triggered by an
inability to pay, default will restrict Argentina's access to international capital markets for as long
as it persists, leaving the government increasingly reliant on monetisation of fiscal deficits, with
inflationary consequences.
A major obstacle to a holdouts deal and an exit from default has been removed with the expiry at
end-2014 of the rights upon future offers (Rufo) clause in restructured bonds. The latter could in
theory have forced the government to give all restructured bondholders the same terms that it
gives holdouts, which it clearly cannot afford to do. The path is now clear for the government to
negotiate if it is so inclined. Yet its public stance to date suggests that it has little intention of
securing a deal with holdouts, and that the problem will instead be left to the next administration.
Our forecasts currently assume a deal in 2016 and a gradual reduction of financing constraints
from this point. For as long as Argentina avoids settling with the holdouts, deficit financing will
be difficult. A heavy public amortisation burden in 2015 will be a particular worry, with US$6.7bn
in Boden 2015 bonds falling due in October. This figure represents over 20% of the foreign-
reserves stock, and restructuring seems vital.

Argentina 6
Monetary policy
Monetary tightening in the face of persistent currency pressure left the interest rate on Lebacs,
threemonth notes from the Banco Central de la República Argentina (BCRA, the Central Bank), at
26.9% at the end of 2014, up sharply from 15.1% a year earlier. At the start of this year the
authorities reduced Lebac rates by around 50 basis points, but the scope for further monetary
loosening remains extremely limited, and we expect rates to rise again ahead of the October
presidential poll. An extended period of gradual monetary easing will take place thereafter.
However, persistent pressure on the currency and weak confidence in the financial system in a
country with a history of crises means that there remains a substantial risk of a fresh interest-rate
spike.
International assumptions
2014 2015 2016 2017 2018 2019
Economic growth (%)
US GDP 2.4 3.2 2.5 2.4 2.6 1.4
OECD GDP 1.9 2.5 2.4 2.3 2.4 2.0
World GDP 2.3 2.7 2.8 2.8 2.9 2.6
World trade 3.4 5.1 5.3 5.4 5.5 5.6
Inflation indicators (% unless otherwise indicated)
US CPI 1.6 0.4 2.2 2.3 2.5 2.0
OECD CPI 1.6 1.5 1.9 2.2 2.2 2.0
Soya beans (measured in US$) -9.9 -21.7 0.6 8.9 12.8 3.1
Oil (Brent; US$/b) 98.9 58.0 71.4 86.1 93.8 92.4
Non-oil commodities (measured in US$) -5.4 -9.3 6.8 6.3 3.6 3.1
Financial variables
US$ 3-month commercial paper rate (av; %) 0.1 0.4 1.6 2.6 3.4 4.1
Exchange rate Ps:US$ (av) 8.08 9.75 12.54 14.75 16.82 18.60

Argentina 7
Economic growth
Although many available indicators suggest that economic activity has remained weak in the first
quarter of 2015 (industrial production and exports have continued to fall), there has been a
noticeable recovery in consumer confidence related to renewed rapid growth in nominal wages.
We also assume that expansionary fiscal policy will persist for another year as the government
ramps up spending ahead of the elections. On this basis, we forecast that real GDP growth will
reach 0.8% this year, notwithstanding headwinds from the deepening recession in neighbouring
Brazil. With much-needed macroeconomic adjustment delayed until 2016, we expect GDP growth
to remain weak in 2016, at 1.9%, as a renewed period of negative wage growth will constrain
private consumption growth.
Our benign baseline assumption assumes that macroeconomic policy tightening, along with peso
adjustment, will eventually start to have a beneficial impact on net exports. Our forecasts also
assume that efforts will be made by the new government to address the problem of legal and
regulatory uncertainty, which should set the stage for renewed strong growth in fixed investment,
supporting an acceleration of GDP growth towards 4% in the medium term. There are downside
risks to this forecast, however, as attempts by a new government to reduce economic distortions
and engineer a relatively smooth adjustment to a lower-inflation environment could prove
extremely challenging. In the meantime, the risk of an uncontrolled depreciation (which would
produce a steep, prolonged contraction in real GDP) will persist.
Economic growth
% 2014a 2015b 2016b 2017b 2018b 2019b
GDP 0.5 0.8 1.9 3.6 3.9 4.0
Private consumption -0.5 0.9 1.0 3.3 3.5 3.4
Government consumption 2.8 3.8 0.4 1.8 2.7 3.0
Gross fixed investment -5.6 0.4 5.4 6.9 5.7 6.0
Exports of goods & services -8.1 -2.0 2.3 5.8 6.7 7.1
Imports of goods & services -12.6 -2.0 2.2 6.9 5.6 6.0
Domestic demand -1.3 1.0 1.9 3.8 3.8 3.9
Agriculture 4.2 4.5 5.5 6.0 6.0 6.0
Industry -0.8 1.8 3.5 3.5 3.5 3.5
Services 0.6 -0.1 0.7 3.3 3.9 4.0
a Actual. b Economist Intelligence Unit forecasts.
Inflation
A new consumer price index was unveiled in February 2014, but concerns remain about the
accuracy of official data: using the new index, official estimates of inflation remain substantially
below private and provincial estimates. Until the official index has a better and longer track record,
we will continue to use data from PriceStats, an Internet price-monitoring company, in our
forecasts. According to these data, inflation came in at 29.7% in February. This is well down from
a peak of over 40% in late 2014, reflecting the sharp fall of oil prices of recent months, along with
base effects (inflation spiked in the immediate aftermath of the January 2014 devaluation). Inflation
will be slow to come down much further in the short term, given strong nominal wage growth and
loose fiscal policy, but we do expect gradual disinflation in the medium term, assuming that fiscal
policy tightens, domestic demand remains subdued (relative to the boom years of 2004-11) and
domestic supply strengthens on the back of improvements in microeconomic policy. Even so,
annual inflation will remain in double digits in 2016-19, reflecting weak institutional underpinning
of price stability and a high level of wage indexation.

Argentina 8
Exchange rates
We assume that, after a 33% nominal depreciation in 2014, currency adjustment under the heavily
managed float will continue in coming years, involving depreciation of slightly over 15% in 2015,
around 25% in 2016 (as commitment to adjustment improves under a new government) and around
10% per year in 2017-19. This would reverse the accumulated real appreciation of the peso in the
past five years that has eroded export competitiveness and bring the real trade-weighted exchange
rate back to around 2008 levels. However, in light of the con-tinued uncertainty over the direction
of policy in the remainder of the current government's term, we continue to believe that there is a
risk of a steep, uncon-trolled devaluation in 2015. The black-market premium has actually
narrowed in recent months, from around 80% in mid-2014 to 50% in late March, reflecting the
temporary boost of a currency-swap agreement with China and recent issuance of US-dollar-
denominated local bonds, which have helped to satisfy local dollar demand temporarily. However,
the authorities have failed to address underlying fiscal and external imbalances, which will, if left
unchecked, eventually force some sort of steep currency adjustment. In this context, the risks to
our forecasts remain high, particularly amid US-dollar strengthening that has seen many emerging-
market currencies weaken substantially in recent months.
External sector
Although we expect the terms of trade to continue to deteriorate for much of the forecast period,
currency adjustment should gradually bolster the current account as a weaker peso starts to
boost goods and services exports and rein in imports. On this basis, we expect the current
account to shift into surplus towards the end of the forecast period. There are large upside and
downside risks to this forecast, depending on the pace of currency and inflation adjustment. We
currently assume that capital inflows will pick up from 2016-17, reflecting renewed investor
confidence in a new government. In the short term, however, portfolio and FDI inflows will be
deterred by a weak legal framework, continued devaluation fears and default. Meanwhile, import
cover will be weakened by the use of reserves to shield the peso from currency pressures and to
repay external debt. A sharp recent decline in import cover highlights the substantial risk of a
major balance-of-payments crisis if capital flight does not subside and a tangible improvement is
not seen in access to overseas finance.
Forecast summary
Forecast summary
(% unless otherwise indicated)
2014a 2015b 2016b 2017b 2018b 2019b
Real GDP growth 0.5 0.8 1.9 3.6 3.9 4.0
Industrial production growth -2.5 1.8 3.5 3.5 3.5 3.5
Gross agricultural production growth 4.2 4.5 5.5 6.0 6.0 6.0
Unemployment rate (av) 7.3 7.9 7.7 7.3 7.2 7.0
Consumer price inflation (av) 37.6 27.7 26.3 21.2 14.6 12.9
Consumer price inflation (end-period) 38.2 27.9 23.3 18.3 13.9 11.5
Prime lending rate 24.0 25.1 21.6 17.8 13.7 11.3
NFPS balance excl privatisation (% of GDP) -2.5 -3.6 -2.5 -1.7 -0.9 -1.0
Exports of goods fob (US$ bn) 71.9c 65.4 68.9 76.4 84.8 94.1
Imports of goods fob (US$ bn) 62.5c 59.3 61.6 68.7 75.7 82.5
Current-account balance (US$ bn) -5.3c -7.4 -6.5 -5.7 -4.1 -1.5
Current-account balance (% of GDP) -1.0c -1.3 -1.2 -1.0 -0.7 -0.2
External debt (year-end; US$ bn) 138.2c 125.5 130.5 141.0 153.9 164.3
Exchange rate Ps:US$ (av) 8.08 9.75 12.54 14.75 16.82 18.60
Exchange rate Ps:US$ (end period) 8.51 11.25 13.64 15.78 17.81 19.59
Exchange rate Ps:€ (av) 10.73 10.57 12.94 16.24 19.38 22.25
Exchange rate Ps:€ (endperiod) 10.33 11.55 14.53 17.83 20.97 23.60
a Actual. b Economist Intelligence Unit forecasts. c Economist Intelligence Unit estimates.

Argentina 9
Quarterly forecasts
Quarterly forecasts
2014 2015 2016
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 -0.2 0.4 0.0 0.3 0.2 0.2 0.2 0.2 0.5 0.7 0.7 0.8
% change, year on year 0.8 0.7 -0.1 0.4 0.8 0.6 0.9 0.8 1.1 1.6 2.1 2.7
Private consumption
% change, quarter on quarter -0.7 0.4 0.2 -1.0 0.6 0.6 0.6 0.6 -0.1 0.1 0.2 0.3
% change, year on year -0.2 0.0 -0.6 -1.2 0.1 0.3 0.7 2.4 1.7 1.2 0.8 0.5
Government consumption
% change, quarter on quarter -0.2 0.2 0.7 3.0 0.5 0.5 0.5 0.5 -0.3 -0.1 0.0 0.1
% change, year on year 4.0 1.8 1.6 3.7 4.4 4.7 4.5 2.0 1.2 0.7 0.1 -0.4
Gross fixed investment
% change, quarter on quarter -3.4 -1.8 -0.2 -4.3 1.7 1.7 1.7 1.7 0.9 1.2 1.2 1.4
% change, year on year -2.6 -4.7 -5.0 -9.5 -4.7 -1.3 0.6 6.9 6.1 5.6 5.1 4.8
Exports of goods & services
% change, quarter on quarter -3.2 3.0 -1.3 -0.4 -0.7 -0.7 -0.7 -0.6 1.2 1.4 1.4 1.5
% change, year on year -10.8 -10.4 -8.8 -2.0 0.5 -3.0 -2.4 -2.7 -0.8 1.2 3.3 5.6
Imports of goods & services
% change, quarter on quarter -2.5 -4.9 -6.7 -6.2 3.1 3.0 2.9 2.9 -1.0 -0.8 -0.7 -0.6
% change, year on year -5.4 -10.0 -15.6 -18.9 -14.2 -7.1 2.5 12.4 8.0 4.0 0.3 -3.1
Domestic demand
% change, quarter on quarter -0.8 -1.0 -0.7 -1.1 1.3 0.7 0.8 0.7 0.2 0.3 0.4 0.6
% change, year on year 1.2 -0.5 -2.1 -3.5 -1.5 0.2 1.7 3.6 2.5 2.1 1.7 1.5
Consumer prices
% change, quarter on quarter 13.1 9.2 6.1 6.8 5.4 5.7 6.8 6.8 6.4 5.1 5.6 4.9
% change, year on year 31.6 40.0 38.3 40.0 30.5 26.3 27.2 27.2 28.3 27.6 26.0 23.9
Producer prices
% change, quarter on quarter 11.5 6.5 3.3 2.9 1.8 3.6 4.7 3.9 4.2 3.9 3.4 2.4
% change, year on year 24.9 28.2 26.6 26.2 15.2 12.0 13.6 14.7 17.4 17.8 16.3 14.6
Exchange rate R:US$
Average 7.58 8.01 8.25 8.46 8.69 9.30 10.11 10.91 11.65 12.26 12.82 13.42
End-period 7.95 8.08 8.38 8.51 8.99 9.71 10.51 11.25 11.95 12.54 13.12 13.64
Interest rate (%; av)
Money market rate 16.7 18.2 15.8 21.0 21.7 21.5 22.5 21.5 19.5 19.5 19.0 17.0

Argentina 10
Data and charts

Annual data and forecast
2010a 2011a 2012a 2013a 2014a 2015b 2016b
GDP
Nominal GDP (US$ bn) 464.8 562.5 609.6 623.9 543.5 565.2 555.7
Nominal GDP (Ps bn) 1,811 2,312 2,766 3,406 4,389 5,512 6,966
Real GDP growth (%) 9.5 8.4 0.8 2.9 0.5 0.8 1.9
Expenditure on GDP (% real change)
Private consumption 8.1 10.2 4.3 4.3 -0.5 0.9 1.0
Government consumption 7.2 8.8 5.9 4.2 2.8 3.8 0.4
Gross fixed investment 22.0 19.4 -7.0 3.1 -5.6 0.4 5.4
Exports of goods & services 14.0 5.6 -5.6 -4.0 -8.1 -2.0 2.3
Imports of goods & services 34.8 22.6 -6.1 3.6 -12.6 -2.0 2.2
Origin of GDP (% real change)
Agriculture 15.4 -3.5 -8.3 10.4 4.2 4.5 5.5
Industry 9.7 9.2 -1.7 0.7 -0.8 1.8 3.5
Services 8.9 9.2 3.2 3.6 0.6 -0.1 0.7
Population and income
Population (m) 40.8c 41.3c 41.7c 42.2c 42.7c 43.1 43.6
GDP per head (US$ at PPP) 18,190c 19,892c 20,181c 20,838c 21,005c 21,150 21,627
Recorded unemployment (av; %) 7.8 7.2 7.2 7.1 7.3 7.9 7.7
Fiscal indicators (% of GDP)
Public-sector balance 0.2 -1.3 -2.0 -1.9 -2.5 -3.6 -2.5
Public-sector debt interest payments 1.2 1.5 1.9 1.2 1.6 1.8 2.1
Public-sector primary balance 1.4 0.2 -0.2 -0.7 -0.9 -1.8 -0.4
Net public debt 36.0 33.2 35.0 38.7 39.1c 40.1 40.0
Prices and financial indicators
Exchange rate Ps:US$ (av) 3.90 4.11 4.54 5.46 8.08 9.75 12.54
Consumer prices (end-period; % change) 25.3 23.6 25.6 22.9 38.2 27.9 23.3
Producer prices (av; % change) 15.1 14.0 13.4 14.9 26.5 13.9 16.5
Stock of money M1 (% change) 31.8 24.6 49.3 26.4 31.6 31.2 25.0
Stock of money M2 (% change) 33.1 26.0 34.8 27.1 29.8 29.0 24.1
Lending interest rate (av; %) 10.6 14.1 14.1 17.1 24.0 25.1 21.6
Current account (US$ m)
Trade balance 14,286 12,870 15,155 11,133 9,495c 6,166 7,284
Goods: exports fob 68,154 83,996 80,244 81,674 71,948c 65,424 68,927
Goods: imports fob -53,868 -71,126 -65,088 -70,541 -62,453c -59,258 -61,643
Services balance -1,180 -2,191 -3,093 -4,118 -3,248c -1,696 -1,737
Primary income balance -11,341 -12,402 -12,759 -11,011 -11,415c -11,812 -11,888
Secondary income balance -405 -547 -481 -789 -90c -93 -203
Current-account balance 1,360 -2,271 -1,176 -4,786 -5,256c -7,436 -6,544
External debt (US$ m)
Debt stock 120,791 132,743 133,042 136,272 138,171c 125,491 130,472
Debt service paid 14,467 15,755 13,144 13,513 13,826c 16,258 14,611
Debt service due 14,470 20,822 13,350 13,947 13,918c 16,350 14,653
International reserves (US$ m)
Total international reserves 52,231 46,354 43,246 30,532 31,404 27,169 27,619
a Actual. b Economist Intelligence Unit forecasts. c Economist Intelligence Unit estimates.
Source: IMF, International Financial Statistics.

Argentina 11
Quarterly data
2013 2014
1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr
2 Qtr 3 Qtr 4 Qtr
Non-financial public sector finance
(Ps m)
Revenue excl privatisation 151,119178,736198,424189,636209,212262,141279,263272,603
Expenditure 156,804186,840206,741232,007224,392284,252295,601328,694
Interest payments 7,143 11,374 10,446 13,036 13,921 25,573 13,717 17,947
Balance -5,685 -8,105 -8,318 -42,371 -15,180 -22,111 -16,338 -56,090
Output
GDP at constant 1993 prices (annual
863.6 866.7 873.7 871.7 870.1 873.1 873.2 875.5
rates; Ps bn)
GDP at constant 1993 prices (% change,
1.3 5.2 3.3 1.8 0.8 0.7 -0.1 0.4
year on year)
Manufacturing at constant 1993 prices
71,203 77,060 79,991 n/a n/a n/a n/a n/a
(annual rates; Ps m)
Manufacturing (% change, year on year) -0.5 4.1 5.7 n/a n/a n/a n/a n/a
Industrial production index (2004=100) 122.5 131.9 132.3 134.6 118.7 127.7 129.9 131.8
Industrial production index (% change,
-1.3 3.6 0.7 -3.5 -3.1 -3.2 -1.8 -2.1
year on year)
Prices
Consumer prices (2000=100) 264.2 271.1 291.2 307.3 347.6 379.5 403 430
Consumer prices (% change, year on
24.2 18.8 19.7 20.4 31.6 40.0 38.3 40.0
year)
Producer prices (2000=100) 608.6 631.4 660.4 681.7 760.2 809.4 836.1 860.4
Producer prices (% change, year on
14.5 14.7 15.3 15.1 24.9 28.2 26.6 26.2
year)
Financial indicators
Exchange rate Ps:US$ (av) 5.00 5.23 5.57 6.04 7.58 8.01 8.25 8.46
Exchange rate Ps:US$ (end-period) 5.10 5.38 5.78 6.50 7.95 8.08 8.38 8.51
Deposit rate (av; %) 13.3 14.6 15.2 16.4 20.6 21.5 19.8 19.8
Lending rate (av; %) 14.5 16.4 17.2 20.5 25.6 24.9 21.3 19.8
Money market rate (av; %) 11.3 12.8 12.6 15.7 16.7 18.2 15.8 21.0
M1 (% change, year on year) 44.8 35.8 43.3 26.4 30.0 33.9 35.6 31.6
M2 (% change, year on year) 31.7 31.6 31.8 27.1 26.7 27.6 27.4 29.8
Merval stockmarket index (end-period;
3,381 2,976 4,784 5,391 6,374 7,887 12,549 8,579
June 30th 1986=US$0.01)
Merval stockmarket index (% change,
26.0 26.8 95.1 88.9 88.5 165.0 162.3 59.1
year on year)
Sectoral trends
ISAC construction activity index (seas
n/a n/a n/a n/a n/a n/a n/a n/a
adjusted; % change, year on year)
Crude oil production (m barrels/day) 0.63 0.64 0.63 0.67 0.65 0.65 0.66 0.66
Crude oil production (% change, year on
-7.4 -4.5 -7.4 0.8 2.8 2.1 5.1 -0.6
year)
Foreign trade (US$ m)
Exports fob 17,466 23,456 21,718 19,020 15,877 20,902 19,338 15,819
Imports cif -15,967 -19,809 -20,259 -17,622 -15,756 -17,338 -17,232 -14,923
Trade balance 1,499 3,647 1,459 1,398 121 3,564 2,106 896
Foreign payments (US$ m)
Merchandise trade balance fob-fob 2,178 4,514 2,304 2,137 806 4,309 2,837 n/a
Services balance -1,417 -878 -1,218 -605 -1,198 -765 -848 n/a
Primary income balance -2,894 -2,697 -2,713 -2,707 -2,941 -2,731 -2,762 n/a
Net transfer payments -89 -104 -25 -572 -6 -5 38 n/a
Current-account balance -2,222 835 -1,652 -1,747 -3,339 808 -736 n/a
Reserves excl gold (end-period) 37,231 34,543 32,069 28,143 24,424 26,604 25,449 29,017
Sources: Ministerio de Economía; IEA, Monthly Oil Market Report; IMF, International Financial Statistics; Instituto Nacional
de Estadística y Censos; PriceStats.

Argentina 12
Monthly data
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Exchange rate Ps:US$ (av)
2013 4.940 4.992 5.065 5.144 5.221 5.315 5.422 5.563 5.721 5.830 5.998 6.303
2014 7.070 7.794 7.883 7.951 7.993 8.075 8.124 8.269 8.366 8.411 8.463 8.506
2015 8.556 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Exchange rate Ps:US$ (end-period)
2013 4.965 5.026 5.102 5.175 5.264 5.375 5.485 5.652 5.775 5.892 6.121 6.501
2014 7.890 7.824 7.952 7.952 8.030 8.083 8.170 8.351 8.380 8.445 8.480 8.510
M1 (% change, year on year)
2013 44.3 44.1 44.8 40.5 35.9 35.8 34.3 39.0 43.3 35.4 31.9 26.4
2014 39.4 30.0 30.0 29.0 33.1 33.9 34.5 34.5 35.6 37.6 44.0 31.6
2015 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
M2 (% change, year on year)
2013 33.6 32.5 31.7 30.4 30.6 31.6 31.2 30.9 31.8 30.7 29.2 27.1
2014 27.7 27.7 26.7 27.2 27.8 27.6 28.1 28.3 27.4 27.2 28.3 29.8
2015 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Industrial production (% change, year on year)
2013 0.2 -4.4 0.2 1.7 5.1 3.9 2.9 -0.4 -0.1 -0.5 -4.7 -5.4
2014 -2.6 -0.5 -5.9 -4.1 -4.9 -0.4 -0.7 -2.9 -1.7 -1.8 -2.1 -2.4
2015 -2.1 -2.1 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Deposit rate (av; %)
2013 13.0 13.2 13.7 13.9 14.7 15.2 14.8 15.3 15.4 15.6 15.7 17.8
2014 19.0 21.2 21.7 21.9 21.5 21.1 20.3 19.8 19.2 19.6 19.9 20.1
Lending rate (av; %)
2013 14.5 14.3 14.6 14.9 17.6 16.7 17.3 16.9 17.4 18.7 20.2 22.6
2014 23.6 25.9 27.3 24.6 24.2 26.1 21.6 23.4 18.9 25.3 23.0 24.3
Merval stockmarket index (end-period; June 30th 1986=US$0.01)
2013 3,462 3,049 3,381 3,846 3,489 2,976 3,358 3,936 4,784 5,165 5,719 5,391
2014 6,019 5,784 6,374 6,782 7,712 7,887 8,188 9,817 12,549 11,019 9,809 8,579
2015 8,490 9,602 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Consumer prices (% change, year on year; av)a
2013 25.4 25.4 22.0 19.1 17.5 19.8 20.8 19.8 18.5 18.7 19.6 22.9
2014 25.4 31.8 37.4 39.7 41.2 39.0 37.5 38.0 39.3 40.6 41.2 38.2
2015 35.8 29.7 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Producer prices (% change, year on year; av)
2013 14.5 14.6 14.3 13.4 13.8 16.7 15.7 15.0 15.2 15.5 14.7 15.1
2014 20.9 25.9 27.8 28.9 29.4 26.3 26.4 27.0 26.3 25.8 26.8 25.9
2015 19.6 13.2 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Total exports fob (US$ m)
2013 5,572 5,649 6,245 7,372 8,501 7,583 7,398 7,474 6,846 7,144 6,609 5,267
2014 5,231 5,393 5,253 6,398 7,117 7,387 6,723 6,599 6,016 5,967 5,279 4,573
Total imports cif (US$ m)
2013 5,358 5,175 5,434 6,378 7,063 6,368 7,022 7,107 6,130 6,550 5,912 5,160
2014 5,196 5,349 5,211 5,472 5,858 6,008 5,920 5,700 5,612 5,606 4,818 4,499
Trade balance fob-cif (US$ m)
2013 214 474 811 994 1,438 1,215 376 367 716 594 697 107
2014 35 44 42 926 1,259 1,379 803 899 404 361 461 74
2015 73 53 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Foreign-exchange reserves excl gold (US$ m)
2013 39,169 38,435 37,231 36,576 35,768 34,543 34,411 33,801 32,069 30,574 28,249 28,143
2014 25,244 24,885 24,424 25,613 26,055 26,604 26,429 26,019 25,449 25,750 26,560 29,017
2015 28,900 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Sources: IMF, International Financial Statistics; Haver Analytics.

Argentina 13
Annual trends charts

Argentina 14
Quarterly trends charts

Argentina 15
Monthly trends charts

Argentina 16
Comparative economic indicators
Basic data
Land area
2,737,000 sq km
Population
40.77m (2011)
Main towns
Argentina 17
Population (m; 2010):

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 2014: Ps8.08:US$1.
Fiscal year
January-December
Time
3 hours behind GMT
Public holidays
January 1st; Good Friday; May 1st and 25th; June 10th and 20th; July 9th (Independence Day);
August 17th; October 12th; December 8th and 25th

Argentina 18
Political structure
Official name
Republic of Argentina
Form of state
Argentina 19
Federal republic
The executive
The president is head of state and commander in chief of the armed forces; elected for a four-year
term; 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; one-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 state,
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
Twenty-three states and 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
October 23rd 2011 (presidential and legislative). Next presidential and legislative elections will be
held in October 2015
National government
The president is Cristina Fernández de Kirchner. She was elected to a first term on October 28th
2007 and re-elected on October 23rd 2011. She took office for a second term on December 10th
2011
Main political organisations

Government: Frente para la Victoria (FV). The FV is formally a faction of the Partido Justicialista
(PJ, the Peronist party)
Main opposition: Unión Cívica Radical (UCR); Frente Amplio Progresista (FAP), which includes
the Partido Socialista (PS) and a number of other small left-wing parties; dissident Peronists;
Propuesta Republicana (Pro); Coalición Cívica (CC)
Key ministers
President: Cristina Fernández de Kirchner
Vice-president: Amado Boudou
Cabinet chief: Jorge Capitanich
Defence: Agustín Rossi
Economy & public finances: Axel Kicillof
Education: Alberto Sileoni
Foreign affairs, international trade & worship: Héctor Timerman
Interior & transport: Aníbal Florencio Randazzo
Justice & human rights: Julio Alak
Labour, employment & social security: Carlos Tomada
Planning, public investment & services: Julio de Vido

Argentina 20
Production: Débora Georgi
Security: María Cecilia Rodríguez
Central Bank president

Alejandro Vanoli

Argentina 21
Recent analysis
Generated on August 15th 2019
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.
Politics
Forecast updates
Another general strike paralyses activity
April 2, 2015: Political stability
Event
Trade unions calling for modifications to income-tax brackets went on strike on March 31st,
bringing Argentina to a standstill and placing pressure on the government months before the
October presidential election.
Analysis
Led by transportation workers, trade-union members nationwide joined the one-day strike to
demand a reduction in the income-tax floor. Air, bus and rail transport were paralysed across the
country. Banks and ports shut down, and cargo trucks halted delivery of petrol and other
products. With many people unable to reach work and school, daily business was also
interrupted. The strike was the fourth such major action in recent years.
With the political landscape shifting ahead of the election, the government tried its best to avoid
the scenario. Despite negotiating with the government until the eve of the strike, union leaders
went ahead after minsters refused to raise the income-tax floor from around Ps15,000 (US$1,700).
Union heads have long been calling for the raise, because regular wage increases on the back of
double-digit inflation are pushing more workers above the minimum threshold. There has not been
a change in the floor since August 2013, although the government has claimed that only 6-8% of
Argentinians pay income tax.
The strike is problematic for the president, Cristina Fernández de Kirchner, whose administration
has been trying to deter social unrest in the build-up to the election. Union leaders threatened
another 36hour strike in April if their demands are not met, but Ms Fernández was unwavering in
her tone during a speech, lashing out at the striking workers and accusing the union leaders of
politicking.
The chances of a rocky electoral transition seem to be heightening. The unrest provides an
opportunity for the opposition to win over powerful union allies, and Sergio Massa, one of
three presidential front-runners, who has slipped behind in recent polls, said he would dispense
with income tax for working-class people if elected.
Impact on the forecast

The government's obduracy in the face of workers' demands increases the possibility of further
strikes and unrest, which may boost opposition candidates, including Mr Massa and the mayor of
the capital, Buenos Aires, Mauricio Macri, ahead of the presidential election. Although our
forecasts continue to assume a victory for Daniel Scioli, the governor of Buenos Aires province,
who will stand on the ruling-party ticket, all three candidates espouse more pragmatic, business-
friendly platforms than the current administration, and our policy assumptions for 2016 and
beyond remain unchanged.

Argentina 22
Pro battle for Buenos Aires mayoralty could damage Macri

April 10, 2015: Election watch
Event
An internal battle in the centre-right Propuesta Republicana (Pro) party risks damaging its leader,
Mauricio Macri, who is emerging as the best-positioned presidential opposition candidate ahead
of October's general elections.
Analysis
Open primary elections for the city parliament and mayoralty of the capital, Buenos Aires, take
place on April 26th. Looking to gather momentum for his presidential campaign, Mr Macri, the
current mayor of Buenos Aires, brought the date of the primaries forward. The Pro's candidates
for the mayorship are Gabriela Michetti, a national senator, and Horacio Rodríguez Larreta, Mr
Macri's current cabinet chief. Ms Michetti is placed first in most polls, with Mr Rodríguez Larreta
close behind, ahead of Martín Lousteau, a former economy minister who is running for a new
electoral alliance, the Frente ECO, and Mariano Recalde of the governing Frente para la Victoria
(FV, a faction of the Peronist party).
Mr Macri has placed his full support behind Mr Rodríguez Larreta, casting him as his natural
successor. However, if Ms Michetti wins the primaries and, subsequently, the Pro candidacy for
mayor, Mr Macri's decision could harm his credibility. In recent weeks the dispute between
Mr Macri and Ms Michetti (who is rumoured to have turned down the current mayor's offer to run
for vice-president on a joint ticket) has become more heated.
Mr Macri has surged ahead of his chief rival in the opposition, Sergio Massa of the Frente
Renovador, a breakaway Peronist faction, and has won key victories in pre-election manoeuvring
nationwide, securing deals with Carlos Reutemann, an influential Peronist senator for Santa Fe
province (a key electoral battleground), and the Unión Cívica Radical, Argentina's secondlargest
party. But Mr Macri's decision to endorse Mr Rodríguez Larreta, by fuelling the feud with
Ms Michetti and placing him at risk of backing the wrong horse, could represent a setback for his
presidential campaign.

A victory for Ms Michetti could weaken Mr Macri, but would not be a major defeat. The
Economist Intelligence Unit would expect him to recover in time for the primary presidential
elections in August. Our forecast that the next president will be more market-friendly is
unchanged.

Argentina 23
Victory for ruling FV in local race

April 14, 2015: Election watch
Event
The electoral campaign has kicked off in earnest with a victory for the Frente para la Victoria (FV, a
pro-government faction of Argentina's dominant Peronist party) in primary elections that took
place in Salta province on April 12th.
Analysis
In the primaries, Juan Manuel Urtubey, the incumbent governor of Salta, who is seeking re-
election in the May 17th provincial election, gained the Peronist party nomination, defeating a
former governor, Juan Carlos Romero. Mr Romero had sealed an electoral alliance with Sergio
Massa, the presidential candidate and leader of the anti-government Peronist movement called the
Frente Renovador Peronista.
The Peronist primary election was expected to be fairly close, but in the event Mr Urtubey won by
a large margin, with 47.3% of the vote, against 33.6% for Mr Romero. This surprise result boosted
the mood not just locally but within the national government, which interpreted the results as a
sign that the FV is still a major contender, despite the accumulation of political and economic
problems during the second mandate of the president, Cristina Fernández de Kirchner.
The mood of FV candidates has also been boosted by some recent opinion polls showing that the
share of voters seeking political change has fallen from 65% to 60%. This relative improvement of
the government's image was driven not so much by the government's own attainments, but by the
inability of Mauricio Macri, a key opposition presidential contender, to sustain the rapid
momentum that saw him leap ahead in opinion polls last month.
Mr Macri's decision openly to support his cabinet chief, Horacio Rodríguez Larreta, against
Senator Gabriela Michetti in mayoral primaries in the capital, Buenos Aires city, which are set for
April 26th, seems to have worked against him, demonstrating that the Propuesta Republicana
(Pro), a centre-right party founded by Mr Macri, is dogged by internal fights for power just like
any other traditional political party. At the same time, although a victory for Mr Rodríguez Larreta
appears likely, a good result for Ms Michetti would damage Mr Macri's standing.

It is difficult to draw too many conclusions from primary elections in one province, but
Mr Urtubey's victory appears to point to a still-solid base of support for the government.
Ultimately, this supports our assumption of a victory for the presumed FV presidential candidate,
Daniel Scioli, in October. We still believe a Scioli government would be much more pragmatic and
businessfriendly than the Fernández administration.
Analysis
US and Latin America break new ground at OAS summit
April 14, 2015
On April 10th-11th Panama City played host to the seventh Summit of the Americas, which made
history by being the first attended by both the US and Cuba. The summit culminated in a face-to-
face meeting and handshake between the US president, Barack Obama, and the Cuban president,
Raúl Castro, confirming a gradual rapprochement that has been taking place over recent
months. However, beyond the much-anticipated meeting between Mr Castro and Mr Obama, the
summit also provided an opportunity for the US to reset its relations with Latin America,
building on the positive sentiment engendered by the US-Cuba meeting.
Relations between the US and Latin America are often fraught, resulting from long-standing
distrust among some Latin American countries about perceived US interference in Latin American
affairs. Although under Mr Obama the US has sought to build strong links with governments in
the region, regardless of ideological differences, relations have deteriorated in recent months,

Argentina 24
largely owing to an increasingly combative US stance towards Venezuela.
Tensions rise over Venezuela

In March 2015 the US imposed sanctions on several Venezuelan officials, arguing that their
actions had breached human rights. This played into the hands of Venezuelan president, Nicolás
Maduro, who used it as an opportunity to shore up both domestic and regional support by
strongly criticising the US move and tapping into fears about US interference. Unsurprisingly, this
stance was supported by Venezuela's allies in the Alianza Bolivariana para los Pueblos de Nuestra
América (ALBA) bloc, such as Ecuador and Bolivia, with the former particularly vocal.
However, the sanctions also drew criticism from countries more usually aligned with the US.
Colombia, long a US ally, was openly critical, as was Chile. Brazil was also critical, pointedly
noting support for Venezuela. Brazil's stance is less surprising than that of Chile and Colombia, as
relations with the US have been rocky since 2013, when the Brazilian president, Dilma Rousseff,
cancelled a planned state visit to the US capital, Washington, following revelations that the US
National Security Agency had spied on her and her government. Despite a warming of rhetoric
since this point, US-Brazil relations have not yet recovered to pre-2013 levels.
Resetting relations
As a result, the Summit of the Americas offered the US government the opportunity to reset
relations with Latin America, as well as the Cuban government. Mr Obama and his delegation held
several meetings with Latin American leaders and their teams, even including a somewhat tense
ten minutes with Mr Maduro. One concrete outcome was the announcement towards the end of
the summit that Ms Rousseff will make a state visit to Washington in June, an indication that
Brazil and the US are looking to put both the 2013 whistle-blower allegations and the Venezuela
issue behind them.
Indeed, barring comments made by Mr Maduro, speeches at the summit were notable for their
focus on Cuba rather than Venezuela, and the general approach was positive. The tone was set by
Mr Obama, who stated that he aimed to look beyond the Cold War in relations with Cuba and,
more broadly, to work with all of the Americas. Mr Castro, in turn, reciprocated by calling
Mr Obama an "honest man" and noting that the US president was not even born when the long-
standing diplomatic breach between Cuba and the US began.
Amid this broadly positive atmosphere, there appeared to be a tacit agreement among the
attendees not to bring up the Venezuela issue, perhaps on the basis that enough criticism of the
US had already been vocalised. This does not mean that all issues have been resolved; a
preliminary motion to release a Summit of the Americas declaration on behalf of all 35 attendees
was shelved, reflecting both the ongoing US-Venezuela tensions and recognition that US-Cuba
relations still have much room for improvement.
Improving regional relations

Beyond the summit, the US will now hope to use the positive sentiment generated to continue to
improve relations with Latin America. This is likely to meet with success in several cases, as
demonstrated by constructive dialogue with Brazil, but will be less effective with countries such
as Ecuador, whose president, Rafael Correa, has domestic motives for maintaining a critical stance
towards the US. In general, however, Latin American governments are likely to see the summit,
and the US-Cuba rapprochement, as an opportunity to restore relations with the US to how they
were prior to the Venezuela sanctions. This will allow diplomatic and economic initiatives with the
US to return to their usual tempo, with Latin American governments also gaining goodwill with
Venezuela for their support over the sanctions.
Leaving aside the US-Cuba rapprochement, one area in which this Summit of the Americas may
have most impact is in improved prospects for the effectiveness of regional institutions, especially
the Organisation of American States (OAS). In theory, the OAS should be the primary forum for
regional discussion and initiatives, as it brings together all 35 countries in the Americas, including
the US and Canada. However, the organisation has been hampered by the Cuba issue, particularly
in the past two decades, as the long-standing absence of Cuba from OAS meetings defeated
efforts to portray the OAS as a truly representative regional body. Moreover, the Cuba issue
often hijacked the agenda at OAS meetings, with proposals to readmit the country or resolutions
Argentina 25
against its suspension taking up considerable meeting time.
With Cuba-US relations now advancing steadily, the issue can be left off the OAS agenda for the
first time in decades. This may now allow the organisation to focus on regional initiatives, such as
proposals for greater economic and trade co-operation, and regional concerns such as crime and
security, and illegal immigration. However, the US will be wary about being seen to play too active
a role in any greater activity on the part of the OAS, in case this should revive any concerns
among Latin American governments about US interference in the region.
Presidential race remains tight

April 20, 2015
With just six months to go before the October 27th general election, the electoral outlook is still
uncertain, and there is as yet no presidential candidate with a clear advantage. Although several
weeks ago a deal between the centreright Propuesta Repúblicana (Pro) and the centrist Unión
Cívica Radical (UCR) boosted the electoral chances of the Buenos Aires city mayor
Mauricio Macri, recent opinion polls do not show a clear winner, and a second-round runoff
between Mr Macri and the governor of Buenos Aires province, Daniel Scioli, is currently the
most likely outcome.
According to the most recent opinion poll, conducted by a local consultancy, Management & Fit,
Mr Scioli and Mr Macri are virtually tied, with the former having the support of 29.5% of
respondents and the latter 28.8%. According to Management & Fit, the third-placed candidate,
Sergio Massa, has fallen well behind, with only 14.6% of the vote. Another poll, conducted by
Poliarquía, has Mr Scioli as the winner, with 31% of the vote, followed by Mr Macri with 25% and
Mr Massa with 21%. A third poll, conducted by Polldata, puts Mr Macri in the lead, with 26.4%,
followed by Mr Massa with 24.2% and Mr Scioli with 23.1%. There is still a relatively large number
of undecided voters (between 6% and 15% of respondents), adding further uncertainty to the
presidential race.
Macri's electoral alliance

The electoral alliance announced by the Pro and UCR in mid-March (which came on the heels of a
deal between the Pro and the Coalición Cívica) was a significant boost to Mr Macri's campaign.
Without a challenge from a UCR presidential candidate, Mr Macri is now the clear choice for
those voters disappointed not just with Kirchnerism but with Peronism in general (Mr Scioli and
Mr Massa represent competing factions of Argentina's dominant Peronist party).
Mr Macri, a former businessman who has founded his own small political party, claims to
represent a clear break with a political system long based on clientelism, and he presents himself
as a "representative of real change". His alliance with the UCR has also given him a much-needed
nationwide base of support, given the Pro's limited presence outside the city of Buenos Aires.
However, an alliance with the UCR is not without its disadvantages, given the UCR's history (the
party's last two presidents were both forced to leave office amid economic crisis), which remains
something of an electoral handicap. On top of this, it is possible that Mr Macri's right-wing stance
will put off middle-class urban voters who would naturally vote for centre-left parties, a group that
includes a substantial chunk of UCR voters.
Mr Macri will face a big test on April 26th, when his current cabinet chief, Horacio Rodríguez
Larreta, attempts to secure the Pro nomination for mayor of Buenos Aires city in primaries that will
pit him against senator Gabriela Michetti. Mr Macri has openly given his support to Mr Rodríguez
Larreta, and a victory for Ms Michetti would be interpreted as a major setback for Mr Macri's
presidential campaign.
Mr Scioli's dilemma
Mr Scioli, meanwhile, remains both blessed and cursed by his relationship with the president,
Cristina Fernández de Kirchner. His decision to remain openly supportive of the president despite
clearly difficult relations with her has helped him to maintain the support of some within the
government ranks. Ms Fernández has, however, refrained from giving Mr Scioli her open support
and is instead thought to prefer the interior minister, Florencio Randazzo, as her successor.
Although a win for Mr Scioli in the Frente para la Victoria (FV, the pro-government Peronist
Argentina 26
faction) primary race is considered inevitable, Mr Scioli will still be concerned that the president
could decide to throw her weight behind Mr Randazzo, or even a figure from La Cámpora, the
hard-left Peronist faction that has become a key support base for the president. It has been
rumoured that Ms Fernández might even prefer a presidential victory for Mr Macri in order to
retain her leading role in the Peronist party. In this scenario, she rather than Mr Scioli would be
more likely to become the de facto leader of the political opposition.
Although opinion polls still suggest that Mr Scioli will win the FV nomination ahead of any
opponent, a bruising primary battle would damage Mr Scioli's position, exposing him to questions
over his independence and more moderate left-wing stance. If he is forced during the primary
campaign to move too close to the president, he will risk putting off centrist voters. This would be
damaging, because, although Mr Scioli still leads in some opinion polls, he has been the clear
Peronist front-runner for many months now, and his current opinion poll ratings may represent
something of a ceiling. All this suggests a tight race and second-round runoff in November.
Mr Massa's next move

Mr Scioli may now be attempting to get Mr Massa to abandon the presidential race and back him
instead (in an alliance that would see Mr Massa run for governor of Buenos Aires province), in
what would be a major boost to his campaign. Having broken from the government in 2013 with
great fanfare and with a strong burst of momentum, Mr Massa's star has faded, and he has now
started to lose much of the support (from voters and within local and national governments) that
he gained during the October 2013 legislative ballots. This loss had had a variety of drivers,
including Mr Massa's inability to attract the support of major Peronist leaders (especially
governors and mayors), and the drainage of former allies to Mr Scioli or Mr Macri's ranks.
Mr Massa has stated that he will not abandon his presidential campaign. But growing sentiment
that the race is really between Mr Scioli and Mr Macri could lead him to review this decision, with
major implications for the remaining contenders.

Argentina 27
Primaries in Santa Fe and Mendoza boost opposition

April 21, 2015
Success for the ruling Frente para la Victoria (FV) in primary elections on April 12th in Salta
was followed by bad results in gubernatorial primaries held on April 19th in Santa Fe and
Mendoza, two important provinces that jointly account for around 12% of the national electorate.
The opposition now has some momentum, but the political scene remains very fluid and the
presidential race is still close.
Since their introduction in 2009, free, open and simultaneous primary elections for all parties have
been treated less as a candidate-selection process than as a dress rehearsal, providing an early
indicator of victory in the main event (candidates are often selected by backroom negotiation
before the primaries and then run alone on their party's ticket). The opposition parties have
therefore been celebrating victory in Santa Fe and Mendoza. In Santa Fe, Miguel del Sel, a former
actor and the gubernatorial candidate for the Propuesta Republicana (Pro, a centre-right party led
by the mayor of the capital Buenos Aires and a presidential candidate, Mauricio Macri) won
32.2% of the vote, ahead of the 31.8% obtained by the Frente Progresista Cívico y Social, a
Socialist coalition that currently holds the governorship. The FV obtained 21.8% of the vote, with
a candidate running on a platform of classical Peronism.
In Mendoza, the opposition victory was even larger. The Frente Cambia Mendoza, led by
Alfredo Cornejo of the Unión Cívica Radical (UCR), obtained 44.9% of the vote, ahead of the
40.3% jointly obtained by the three candidate lists presented by the FV (which currently governs
the province). The Frente Cambia Mendoza is a coalition of the UCR, the Pro, and the
Frente Renovador, an anti-government Peronist party faction led by another presidential hopeful,
Sergio Massa.
Dissatisfaction with local government

In both provinces, the primaries resulted in defeat for the ruling parties, suggesting voter
discontent with local governments. In Santa Fe the Frente Progresista Cívico y Social is suffering
from the natural erosion of power after seven years in office. In recent years the province has also
been struck by a rise in violent crime related to narco-trafficking that the government has been
unable to tackle.
Two factors appear to have led to defeat for the FV in Mendoza: a broad opposition alliance, and
infighting among the local FV leadership. The electoral list headed by the current Mendoza
governor, Francisco Pérez, failed to include many members of La Cámpora, the hardleft wing of
the FV close to the president. The central government punished Mr Pérez by delaying the transfer
of funds to pay public employees' wages, a situation that undermined the FV's chances of
electoral success in the province.
National implications
The Pro victory in Santa Fe will provide a short-term boost to Mr Macri, who faces a big challenge
in just a few days, on April 26th, when his cabinet chief, Horacio Rodríguez Larreta, who has his
explicit backing, will run in the Pro primary for mayor of Buenos Aires against Gabriela Michetti.
That said, the Santa Fe primary result was in fact a close one, and a victory in the October election
cannot be taken for granted.
The Mendoza result may be more revealing, demonstrating the benefit of a widespread opposition
coalition. Although Mr Massa's own presidential chances appears to be dimming (he is in third
place in opinion polls, behind Mr Macri and Daniel Scioli, the governor of Buenos Aires
province), Mr Massa's support in Mendoza was important to the alliance's result. Mr Massa now
has the chance to play the role of kingmaker in the national elections in October, offering his
support either to Mr Scioli and the FV, or Mr Macri and a Pro-UCR coalition. Like Mr Scioli,
Mr Massa is a member of the Peronist party. However, Mr Massa broke dramatically from the
government in 2013, and leads the anti-government Peronist faction. He could therefore feasibly
decide to back either Mr Scioli or the opposition, and potentially tip the balance in favour of his
chosen candidate. It is possible that the series of primaries being held in coming weeks will help
Mr Massa to decide his position.

Argentina 28
Macri gets fresh boost from Buenos Aires city primaries

April 27, 2015
Primary elections in the city of Buenos Aires, the capital, fuelled momentum for Mauricio
Macri, the front-running opposition candidate for the presidency. His party took 47.3% of the
vote, a notable victory, led by his preferred candidate, which will bolster his leadership. However
he still has large obstacles to overcome as the pre-election landscape takes shape.
Mr Macri's party, the Propuesta Republicana (Pro, a centre-right party), comfortably won primary
elections in the city of Buenos Aires, giving added force to Mr Macri's presidential bid. The
primary elections, a candidate-selection process involving all parties and the entire electorate,
often function as a dress rehearsal for the main event. Yet in this primary, two Pro mayoral
candidates pitted themselves against each other: Mr Macri's cabinet chief, Horacio Rodríguez
Larreta, and senator Gabriela Michetti.
An easy win for the Pro in the city of Buenos Aires

Mr Rodríguez Larreta, who had been endorsed by Mr Macri, the current Buenos Aires mayor, won
easily with 28.4% of the vote. Ms Michetti took 18.9%. The accumulated vote for the Pro was
therefore 47.3%, placing it far ahead of the Frente ECO, a new electoral alliance, with 22.3%, and
the ruling Frente para la Victoria (FV), with 18.7%. The Pro has been the dominant force in
Buenos Aires city since Mr Macri's first election as mayor in 2007, so the victory is not in itself
that telling. It does, however, add to a string of successes for Mr Macri, after he secured a
nationwide alliance with the Unión Cívica Radical (UCR, also known as the Radicals) and the Pro's
gubernatorial candidate won the primaries on April 19th in Santa Fe province, a key battleground.
Crucially, Mr Rodríguez Larreta's victory will fuel positive perceptions of Mr Macri's leadership.
Had Ms Michetti secured the mayoral candidacy, it could have triggered more Pro in-fighting and
bruised Mr Macri's image.
The city of Buenos Aires primaries demonstrated a decline in support for the FV, which had
hoped to emerge—as it has in recent years—in second place behind the Pro. It also marked the
rise of Martín Lousteau, a former economy minister who finished third (with 17.8% of the vote) for
the Frente Eco, which has united the Radicals and another party nationally aligned with the Pro.
Because of this alliance, it is unclear how aggressive Mr Lousteau will be when he battles with
Mr Rodríguez Larreta for Ms Michetti's votes in July's main event; this subtlety could benefit
Mr Macri a little in the presidential race.
Mr Massa's candidacy struggles

The most significant loser to emerge from the primaries in the city of Buenos Aires was Sergio
Massa, who leads a competing faction of Argentina's dominant Peronist party and has fallen far
behind in most national polls. Although he is not a force in the city, his candidate did not even
secure the minimum to compete in July. Mr Massa now remains a player only in Buenos Aires
province, Argentina's most populous province, and probably the key to the presidential election.
Mr Macri said in the aftermath of the Pro's victory that he would not consider an alliance with
Mr Massa because he is Peronist.
Polarising the scene between Peronists and non-Peronists suits Mr Macri now, but he has no
foothold in Buenos Aires province. Subsequently, down the line, he may still look to unite the
opposition to capture Mr Massa's votes, which could swing the national race. In Mendoza
province's primaries on April 19th, the winning candidate was backed by both Mr Macri and
Mr Massa, demonstrating the advantages of a wider coalition. The leaders will still want to see
how the primaries play out in Córdoba province, home to Argentina's secondbiggest city, where
Mr Massa is aligning with Manuel de la Sota, its influential Peronist governor, against the Pro-
UCR candidate.

Argentina 29
Economy
Forecast updates
Tax revenue rises strongly
April 8, 2015: Fiscal policy outlook
Event
Growth in tax revenue exceeded inflation in March, suggesting that economic activity may have
started a modest recovery.
Analysis
Central government tax revenue rose by 33.9% year on year in March. The rise was slightly above
the annual inflation rate estimated by the Inflación Congreso (an average, compiled by legislators,
of figures calculated by private consultants) for February (31.4%), suggesting that although
economic activity remains weak, it may have resumed a moderate pace of growth.
Rising income tax was the main driver of the overall increase in tax revenue, rising by 40.2% year
on year. Income-tax revenue accounted for 20% of total tax revenues and was the second-largest
source of government revenue. Although the burden on individuals has increased steadily owing
to a failure to adjust thresholds and tax brackets, its importance as source of revenue will prevent
the government from making any change to these parameters, even though inflation remains high.
Revenue from value-added tax (VAT, which accounts for nearly one-third of total tax revenue)
rose by 32.8%, mainly driven by the VAT levied on domestic market transactions, which rose by
40.4%. Although accounting for just 2% of tax revenue, tax on petrol sales rose by 53.7% in
March, driven by higher prices and rising volume sales. Employers' payroll taxes also rose firmly
(by 44.6%), further indicating a recovery in private consumption in March. By contrast, revenues
from export taxes decreased by 12.8%, in line with falling export earnings.

With government spending likely to be rising strongly, we continue to expect the non-financial
public sector (NFPS) deficit to rise in 2015. Rather than raising revenue further, our forecast that
the government will turn to other options to finance the growing fiscal imbalance (such as the
issue of government securities in the domestic market) remains unchanged.

Argentina 30
Construction activity shows signs of recovery

April 9, 2015: Economic growth
Event
Construction activity has started to show signs of a recovery, driven by public works and lower
construction costs.
Analysis
In February the seasonallyadjusted Indicador Sintético de la Actividad de la Construcción (ISAC,
the construction activity indicator) rose by 8.3% year on year, and accumulated an expansion of
3.8% in the first two months of 2015. The non-seasonally adjusted index reached a historical peak
in February, suggesting that construction has started to recover after a downturn driven by the
implementation of foreign exchange controls in 2011, which struck the dollarised real estate
market.
Growth was driven by new construction in the oil sector, expanding by 11.4% (and by 12% in the
first two months of the year), mainly triggered by new investments in Vaca Muerta, the shale oil
field owned by Yacimientos Petrolíferos Fiscales (YPF, the state oil firm). Other infrastructure
works (including works in ports, and in water, electricity and gas networks) were also up by 9.5%
in February (and by 5.1% in the first two months of the year) as the government began ramping up
spending ahead of the general elections in October. Residential construction also expanded: the
construction of residential buildings grew by 8.2% in February (and by 3.3% in the first
two months of 2015), while construction of buildings for other use grew by 7% and 3.4%
respectively. Road works expanded at a more moderate rate (3% in February and 1% in the first
two months of the year).
The sale of construction inputs (such as cement, paint and asphalt) grew quickly in February,
while other indicators, such as approvals of new residential construction areas, also expanded in
this period, suggesting that the pick-up shown in construction activity could continue.
Construction costs (measured using the black-market exchange rate) are at their lowest level for
six years. Given the lack of adequate investment opportunities in the financial market, the appeal
of investing in the real estate market is on the rise, on the anticipation of a recovery of the sector
in 2016.

The data are in line with our forecast that GDP growth will reach 0.8% this year (up from 0.5% in
2014)—despite a worsening outlook for Brazil—amid continued expansionary fiscal policy ahead
of the general elections.

Argentina 31
World Bank's arbitration arm rules against Argentina

April 13, 2015: Policy trends
Event
The World Bank's International Centre for Settlement of Investment Disputes (ICSID) ruled on
April 9th that Argentina must pay US$405m to a French water company, Suez, after the
government revoked its contract in 2006.
Analysis
ICSID ruled that the government must pay compensation to Suez, a water company based in Paris,
of US$405m after the Argentinian government terminated its water supply and sewage treatment
contract in that country's capital, Buenos Aires.
Citing a lack of investment, in 2006 the administration of Néstor Kirchner, the predecessor and late
husband of the current president, Cristina Fernández de Kirchner, revoked the contract of Suez's
Argentinian subsidiary, Aguas Argentinas. It then nationalised water and sanitation services,
which had been sold off by the government in the 1990s during a wave of other privatisations.
Argentina has around 20 pending claims at ICSID, and it has not paid some other settled claims,
many of which were brought in the wake of the country's financial and economic crisis in 2001-02.
The economy minister, Axel Kicillof, said that the government would appeal the ICSID's decision.
He argued that the ruling was in fact a victory for Argentina because Suez was awarded only one-
third of the US$1.2bn that it was demanding. Mr Kicillof's hostile tone marked a shift from the
government's stance in October 2013, when it agreed to pay US$677m to five companies that had
won claims at ICSID. At that point, the government was manoeuvring to normalise its creditor
relationships, including striking a compensation deal with Spain's Repsol for the 2012
expropriation of its majority share in Yacimientos Petrolíferos Fiscales (YPF, Argentina's staterun
oil company). However, that virtuous cycle of policies ended last year when the government was
unable to settle a legal dispute with bondholders and found its access to international capital
markets still barred, despite its efforts at conciliation on many fronts. Now, with the country's
foreign reserves stable because of a currency swap with China, Ms Fernández and Mr Kicillof
have turned back to a combative and populist discourse.

We had already predicted that the investment climate may deteriorate this year as the leftist
government seeks to defend its legacy ahead of the presidential election in October. Mr Kicillof's
brusque reaction to the ICSID ruling supports this forecast.

Argentina 32
New local-dollar issuance to boost spending

Event
The government has sold around US$1.4bn in local-law bonds to fund a housing project,
deepening its policy of raising money through debt issuances in an election year.
Analysis
The Ministry of the Economy said it raised US$1.41bn in a local bond sale on April 21st, nearly
three times what it was offering. But the sale of the Bonar 24 bonds, which mature in 2024, was
expensive, with the government paying nearly 9% interest, much higher than that paid by other
countries in the region. The move comes after the government failed to elicit interest in a dollar-
denominated issuance last December, when it sold less than 10% of a US$3bn offering.
The fiscal deficit is widening, but the government is now clearly abandoning the debt-reduction
policy of the past decade to finance new expenditure ahead of October's presidential election. Last
month, it raised Ps5bn (around US$575m) in new local bonds. The auctions mean the government
is a little less dependent on the money it borrows from the pension fund at the Administración
Nacional de la Seguridad Social (Anses, the social-security agency) and the Banco Central de la
República Argentina (BCRA, the Central Bank), which could alleviate inflationary pressures. Axel
Kicillof, the economy minister, said the new sale would fund infrastructure projects, chiefly a
housing scheme.
With the government remaining in default and blocked from global capital markets, Mr Kicillof
said the high demand for the local Bonar 24s was evidence that Argentina remains attractive to
foreign investors. Hold-out creditors involved in the drawn-out legal battle taking place in the
New York courts had sought to impede the sale by warning investors that the bonds may be
covered by a US injunction that prevents the government from servicing most of its debt. The
judge in the case, Thomas Griesa, has subsequently given the creditors permission to investigate
the issuance.

The debt auction might ease some immediate pressure on the public finances, but it also points to
the government's need to find alternative ways to fund several new projects that have been
announced ahead of the elections. There is, consequently, an increased risk that the fiscal deficit
will come in above our current forecast, and an increased risk of financing difficulties if the
sovereign does not eventually come to an agreement with hold-outs and exit default.

Argentina 33
Fiscal deficit widens sharply

Event
The primary fiscal deficit climbed by 140% year on year in February, and the overall fiscal deficit
more than doubled as expenditure growth outpaced revenue collection by a large margin. The
primary and overall deficits tripled in January-February.
Analysis
Demonstrating the government's use of fiscal policy as a counter-cyclical policy tool, primary
expenditure rose by 34% year on year in February, well above growth in total revenue of 27%. Tax
revenue rose by 26%, below total revenue growth and inflation, suggesting that the economy
remains weak and that the government is reliant on alternative sources of funds to support the
public finances, including transfers from the Banco Central de la República Argentina (BCRA, the
Central Bank). "Property income", a revenue item that includes transfers from the BCRA and the
Administración Nacional de Seguridad Social (ANSES, the social security agency), rose by 38% in
February, to Ps2.4bn (around US$270m), a figure that is roughly equivalent to a key component of
current expenditure, interest payments (Ps2.9bn).
The main driver of growth in primary expenditure was current transfers to the private sector, which
rose by 44% and accounted for nearly one-quarter of total primary expenditure growth. This item
includes subsidies to the energy sector, which had been expected to fall in response to lower oil
prices but continued to rise, mainly owing to the fixed price of US$7/mBTU guaranteed to oil
companies that expand their natural gas production, and also to a rise of subsidies for public
transport. Capital expenditure also rose by a sharp 43%, boosted by investment in state
companies, including nuclear power plants and Arsat, the state-owned telecommunications
company.

The government is clearly prioritising fiscal expansion, and at the same time revenue is continuing
to disappoint. Although we already forecast a substantial widening of the fiscal deficit this year,
the January-February data suggest that there are downside risks to our forecasts.
Analysis
EIU global forecast - Monetary easing draws to a close
April 15, 2015
Emerging-market central banks are in a quandary. As the US dollar soars and the Federal
Reserve (Fed, the US central bank) prepares to raise interest rates, developing-country central
banks might have been expected to fall in line to protect their currencies and attract investment.
Instead, declining oil prices and low inflation have encouraged rounds of monetary loosening,
even as the relentless rise of the dollar threatens to turn the depreciation of some emerging-
market currencies into a rout. The risk is greatest for those economies that have borrowed
heavily in US dollars—and which need to service those debts with weaker local currencies. But
an increasing number of central banks choosing to hold interest rates in recent weeks suggests
that—with a few exceptions—the monetary easing that began in the second half of 2014 is now
over and interest rates will have to rise again, with important consequences for economic
growth.
The Economist Intelligence Unit has long argued that the risks associated with rising interest
rates in the US should not be ignored, given the plunge in emerging-market stocks, bonds and
currencies when the Fed announced its intention in mid-2013 to begin to taper its quantitative
easing (QE) programme. Pressure on emerging markets eased in 2014 as lower inflation in the US
pushed down bond yields, and, when oil prices started to decline, many central banks saw an
opportunity to reduce rates as a means of stimulating growth or battling disinflation. But a new
phase of intense pressure has returned against the backdrop of a soaring US dollar. Since July

Argentina 34
2014 the dollar has appreciated against almost all major currencies. Countries that need to finance
wide current-account deficits, such as Brazil and Turkey, will be particularly vulnerable to weaker
currencies and capital outflows.
For the global economy as a whole, we expect growth this year of 2.7% at market exchange rates;
at purchasing power parity exchange rates, which give more weight to emerging markets, real GDP
will expand by 3.5%. On balance, 2015 should be a better year for global growth than 2014, owing
largely to an acceleration in the US, better growth in the euro zone and an improvement in several
emerging markets, notably India.
Developed world
Fundamentally, the US economy looks strong; job creation has been buoyant and real disposable
income is climbing. Consumer confidence in February was at an eight-year high. But bad weather
clearly slowed economic activity in the first quarter of 2015, as it did in the first quarter of 2014,
when the economy shrank. The weather has depressed retail spending and some industrial
activity, although we are confident that many purchases will simply be deferred to the second
quarter, which will be stronger as a result. Consequently, we are maintaining our forecast of real
GDP growth of 3.2% in 2015, which, if realised, would be the best year for the economy since 2005.
Our 2015 forecast for real GDP growth in the euro zone remains at 1.4%. Although growth is still
far below potential, it has been accelerating in a number of key economies, aided by the QE
programme of the European Central Bank (ECB), a depreciating euro and less restrictive fiscal
policy. Government financing costs are also falling as the ECB's QE programme pushes down
government bond yields (even into negative territory for a number of European countries inside
and outside the euro zone). Retail sales in the euro zone in volume terms rose by 3.7% year on
year in January 2015, the fastest rate of expansion in almost a decade, while the headline
composite purchasing managers' index (PMI) picked up to 53.3 in February, from 52.6 in January,
suggesting a solid start to 2015. There have also been signs of improvement in the banking sector
following the ECB's comprehensive review. We continue to believe that the chance of Greece
exiting the euro zone is around 40%, although there has been no progress on the compromises
needed to end the stand-off between the Syriza government and Greece's creditors.
The Japanese economy escaped from recession in the fourth quarter of 2014 and the snap election
called in December produced a renewed mandate for the prime minister, Shinzo Abe, and his
Liberal Democratic Party (LDP). Nevertheless, stiff challenges await. Growth in 2014 was flat after
the economy was disrupted by a rise in the consumption tax, while Mr Abe's win owed less to the
success of Abenomics, his eponymous economic strategy, than to the paucity of ideas on offer
elsewhere. He now has time to implement his structural reform programme, designed to shake up
the lethargic economy and end the deflationary cycle, as well as pursue his desired changes to the
constitution regarding Japan's self-defence forces. The parlous state of the public finances,
especially in the long term, will also affect policymaking. In 2015 the fall in global oil prices and the
promise of higher wages ought to have a positive effect on consumption, but growth will remain
relatively weak, at 1.3%.
Emerging markets
The Chinese economy began 2015 in uncertain fashion, leading the the premier, Li Keqiang, to
announce that the government was prepared to use fiscal policy to achieve a growth target of
"around 7%" in 2015. The focus on fiscal levers reflects a desire to wean the economy off a
dependence on credit, as well as recognition that monetary loosening is now less effective than it
used to be in stimulating demand. In the light of the revised target and generally lacklustre data
flow, we have cut our GDP forecast for 2015 from 7.2% to 7%. The Indian economy is
strengthening, off the back of lower oil prices, which has eased structural problems with high
inflation. In its first full budget, for fiscal year 2015/16 (April-March), the government pledged
more money for much-needed roads and railways and cut some red tape for entrepreneurs. It
relaxed slightly some fiscal deficit targets and increased spending on welfare. All of these moves
are positive, but are no more than incremental improvements. Owing to a new government
methodology for calculating GDP, we now expect growth of 7.1% a year in 201519—a full
percentage point higher than previously.
The Ukraine crisis dominates the outlook for the Transition region. Western sanctions imposed

Argentina 35
on Russia, together with lower oil prices, have weakened that country's economy, which we now
expect to contract by 4% in 2015. Since the signing of another ceasefire in February, the fighting
has greatly diminished and both sides have made progress in moving heavy weapons away from
the conflict zone. Prospects for a lasting peace are dim, however, given the distance between the
two sides over the degree of autonomy that Kiev is willing to grant eastern Ukraine. The most
likely outcome remains a "frozen" conflict that enables Russia to exercise influence in Ukraine and
to block moves by the government in Kiev towards closer integration with the West. We expect
the region as a whole to contract by 0.5% in 2015, driven by the Russian recession, from estimated
growth of 1.4% in 2014.
The headwinds that Latin America has faced in 2013-14 are persisting in 2015. We expect most
commodity prices to fall this year, held back by sluggish global demand and a strengthening US
dollar, eroding the terms of trade at a time when the outlook for capital inflows is uncertain. With
the exception of Venezuela, and possibly Argentina and Ecuador, we expect the region to
withstand such shocks better in 2015 than it has done in previous US monetary tightening cycles.
The reason for greater confidence now is that, although the region has a current-account deficit,
of around US$160bn (2.7% of GDP) in 2014, it has stronger external and fiscal balance sheets than
previously. That said, the outlook for Brazil, the region's largest economy, is miserable: we expect
the economy to shrink by 1% in 2015. A new round of fiscal and monetary tightening will crimp
private consumption and a huge corruption scandal at the state energy firm, Petrobras, will be a
distraction.
Lower income from oil is compounding an unstable political environment in the Middle East and
North Africa, limiting growth to just 2.5% in 2015, well below pre-Arab Spring levels. The
framework agreement reached by Iran and the P5+1 (the five members of the UN Security Council
plus Germany) is likely to prove transformative for the world's 14th biggest economy. If Iran truly
opens up to the world, this will create significant investment opportunities, albeit in a challenging
business environment. Given Iran's hydrocarbons wealth, demographics and economic diversity,
a comprehensive nuclear deal could herald a return to trend real GDP growth rates of around 5%.
A stronger and less isolated Iran would also alter the geopolitical balance in the Middle East,
posing threats to the domination of the region's Sunni regimes. In the meantime, regional attention
will remain focused on Iraq and Syria, the crucible of the Islamic State (IS) militant group. We
expect continued instability in Libya, where violence has led to some oilfields suspending
production.
Growth in Sub-Saharan Africa will slow in 2015, owing to decelerating growth in China and lower
commodity prices. Welcome structural reforms are occurring across the continent, but at the cost
of widening fiscal deficits, which will become more expensive to finance as policy tightens in the
US. Lower oil prices will harm prospects in several exporting economies, but lower food prices will
benefit the majority of African nations, which are net food importers. The peaceful ousting of
Goodluck Jonathan in Nigeria's presidential election bodes well for political stability in the
continent's largest economy, although Muhammadu Buhari faces a stiff task in untangling the
vast, lucrative patronage network that surrounded his predecessor and his party.
Exchange rates
The start of sovereign bond buying in the euro zone set off a renewed depreciation in the euro,
which fell to US$1.04:€1 in early March. Although the USdollar rally has stalled in recent weeks,
we remain of the view that diverging monetary policy between the US and the EU and Japan will
keep the dollar strong in the next two years. Indeed, we expect the US dollar to rise above parity
with the euro on an annual average basis in 2016. Oil will continue to exert an influence over
emerging-market currencies: those of large producers such as Russia have suffered significant
depreciations, while those of importers such as India have shown much more resilience.
Commodities
Dated Brent Blend has been highly volatile so far in 2015. Prices have traded between
US$46/barrel and US$62/b since January. Despite a falling rig count in the US, which will feed into
slowing production growth in North America as the year progresses, the oil market remains
extremely well supplied. Saudi Arabia is continuing to pump at record levels and there is a
growing risk that output in Libya and Iran could rise considerably over the next 18 months. We
maintain our forecast for the average Brent price in 2015 at US$58/b.
Argentina 36
World economy: Forecast summary

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Real GDP growth (%)
World (PPP* exchange rates) 5.0 3.7 2.9 3.1 3.2 3.5 3.8 3.8 3.9 3.6
World (market exchange
3.9 2.6 2.1 2.2 2.3 2.7 2.8 2.8 2.9 2.5
rates)
US 2.5 1.6 2.3 2.2 2.4 3.2 2.5 2.4 2.6 1.4
Japan 4.7 -0.4 1.7 1.6 -0.1 1.3 2.0 1.3 1.7 1.5
Euro area 2.0 1.7 -0.8 -0.4 0.9 1.4 1.5 1.5 1.6 1.6
China 10.4 9.3 7.7 7.7 7.4 7.0 6.8 6.4 6.0 5.6
Eastern Europe 3.2 3.7 2.1 1.6 1.4 -0.5 1.9 2.8 2.5 2.6
Asia and Australasia (excl
8.5 6.2 5.6 5.7 5.8 5.8 5.8 5.5 5.5 5.5
Japan)
Latin America 6.0 4.8 3.1 2.8 1.3 1.2 2.1 3.2 3.4 3.5
Middle East & Africa 4.9 3.2 3.5 2.3 3.0 2.5 3.4 3.9 4.1 4.2
Sub-Saharan Africa 5.1 4.0 3.3 3.6 3.6 3.2 4.3 5.0 5.1 5.1
World inflation (%; av) 3.1 4.3 3.5 3.2 3.0 2.3 3.1 3.3 3.5 3.4
World trade growth (%) 14.0 6.8 2.7 2.7 3.4 5.1 5.3 5.4 5.5 5.6
Commodities
Oil (US$/barrel; Brent) 79.6 110.9 112.0 108.9 98.9 58.0 71.4 86.1 93.8 92.4
Industrial raw materials
44.8 21.7 -20.3 -5.9 -5.5 -3.6 11.2 3.7 3.1 3.2
(US$; % change)
Food, feedstuffs &
10.7 30.1 -3.4 -7.4 -5.3 -13.9 3.8 9.4 3.9 3.0
beverages (US$; % change)
Exchange rates (av)
¥:US$ 87.8 79.8 79.8 97.6 105.9 122.0 125.0 124.0 122.0 120.0
US$:€ 1.33 1.39 1.29 1.33 1.33 1.04 0.99 1.07 1.15 1.20
*PPP=purchasing power parity
Source: The Economist Intelligence Unit.

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Outlook for 2015-19

Data and charts

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Outlook for 2015-19

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Outlook for 2015-19

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Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Data and charts

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Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

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Annual trends charts

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Quarterly trends charts

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Monthly trends charts

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Comparative economic indicators

Population (m; 2010):

Weather in Buenos Aires (altitude 27 metres)

Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Main political organisations

Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Central Bank president

Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Impact on the forecast

Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Pro battle for Buenos Aires mayoralty could damage Macri

Impact on the forecast

Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Victory for ruling FV in local race

Impact on the forecast

Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Tensions rise over Venezuela

Improving regional relations

Presidential race remains tight

Macri's electoral alliance

Mr Massa's next move

Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Primaries in Santa Fe and Mendoza boost opposition

Dissatisfaction with local government

Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Macri gets fresh boost from Buenos Aires city primaries

An easy win for the Pro in the city of Buenos Aires

Mr Massa's candidacy struggles

Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Impact on the forecast

Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

Construction activity shows signs of recovery

Impact on the forecast

Country Report April 2015 www.eiu.com © Economist Intelligence Unit Limited 2015

World Bank's arbitration arm rules against Argentina

Impact on the forecast