The National Statistics Institute (INDEC) published revised data for the national income accounts dating back to the base year (2004) and the new estimations show major differences for the country's GDP and its deflator when compared to the previous government's estimations.
IHS perspective | |
Significance | Official data show a significant deceleration in the annual growth rate for Argentine GDP during the first quarter of 2016; the estimations for the last two quarters of 2016 were revised upwards for the majority of the sectors in the economy. |
Implications | The first-quarter data show declines in the annual growth rate for the primary, the mining, the manufacturing, the construction, the wholesale and retail, and the hospitality sectors. |
Outlook | The unfavourable external environment increases the necessity to contain domestic costs and improve competiveness. The orthodox and transparent monetary policy approach should reduce uncertainties and promote a more sustainable path for economic growth. |
According to the latest data release by Argentina's National Institute of Statistics and Census (INDEC), GDP increased by 0.5% year on year (y/y) in the first quarter of 2016. Reviewed data for 2015 show a significant upwards adjustment for the fourth quarter (from 0.9% y/y to 2.2% y/y). Correcting for seasonality, GDP during the first quarter contracted 0.7% quarter on quarter (q/q) after contracting 0.4% q/q in the fourth quarter of 2015. In terms of the revision to previous years' GDP estimations, there is a stark difference for the data corresponding to 2009 (a 6% contraction versus the previous 0.05% expansion). Meanwhile, the new data for the GDP deflator show much faster expansions for the 2008–15 period; moreover, the estimate for the first quarter of 2016 is a rise of 35.6% y/y for the GDP deflator while the private-sector consumption deflator rose 35.1% y/y during a similar period.
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Demand in the economy posted a rise of 13.1% y/y in real exports of goods and services, a rise in private-sector consumption of 1.1% y/y, an increase in public-sector consumption of 2.7% y/y, and a decline in gross fixed-capital formation, down by 3.8% y/y; this decline, was influenced by the construction subsector (down 4.4% y/y), the transportation equipment sector, down 1.3% y/y, and the durable production equipment category, down 1.8% y/y. Meanwhile, imports of goods and services expanded 12.2% y/y in January–March 2016.
By sector, the GDP data show some expansions in the first quarter, such as the significant rise in the transport and communications sector (up 4.2% y/y) and increases in the utilities (up 1.0% y/y), real estate and business services (up 1.5% y/y), and financial intermediation sector (up 1.2% y/y). In addition, activity in the social services and health sector expanded 2.9% y/y, and public-sector services increased by 2.3% y/y. On the other hand, manufacturing activity declined by 1.6% y/y, while the mining sector declined 3.3% y/y, the construction sector decreased 5.2% y/y, and the wholesale and retail sales sectors were down 0.4% y/y. Meanwhile, there was a 5.1% decline in the primary sector in the first quarter.
Outlook and implications
The country is working on re-establishing confidence in the statistics they publish. The upwards revision to the GDP growth rate in 2015, to 2.4%, increases the pressure on President Mauricio Macri's administration to show positive results in terms of the policy changes implemented in the first seven months. Indeed, reactivating the economy and reducing the country's inflation rate are the top priority as rising costs continue to hold down industrial production. The elimination of currency controls has revived the possibility of purchasing US dollars for the purpose of savings, thus reducing the incentives to consume as it was reflected in the stark deceleration in the annual growth rate of private-sector consumption. Given the complicated external environment, reducing uncertainty on the direction of policy and strengthening the rule of law are crucial factors to allure foreign investment. Argentina's exports continue to be mostly primary products and manufactures of agriculture origin. Agriculture commodity price expectations were already gloomy, with no recovery until the end of 2017 and into 2018, before the UK referendum; the UK vote to exit from the European Union will have a negative effect on commodity prices in the short term. In addition, the flight to quality could shy away foreign investors from taking on risk at emerging markets at least until the dust settles. IHS expects volatility in the foreign-exchange market in the short term. The external hurdles make it more imperative to contain domestic costs and improve competiveness.