A bumpy recovery in Argentina

Activity fell between December and January, following two months of strong growth.


Economic activity in Argentina fell between December and January, following two months of strong growth. The EMAE (official monthly GDP proxy) fell 0.5% MoM in January, but expanded by a strong 5.6% QoQ/saar. Activity grew 1.1% YoY, marking the first positive reading since March 2016.

Primary activities continued to lead growth. Agriculture & Livestock expanded by 10% YoY in January, followed by Transportation (3.3% YoY), Financial Intermediation (2.8% YoY) and Real Estate activities (2.2% YoY). Despite the slight improvement relative to December, Manufacturing and Construction remained sluggish, contracting by 0.8% YoY and 1.1% YoY, respectively. Mining was the worst performer, falling by 4% YoY.

We expect the recovery to continue, but the road is likely to be bumpy. The IGA (GDP proxy produced by the OJF consultancy firm) fell by 0.7% MoM in February, although there is evidence that the Agriculture sector continued to perform well and construction activity showed incipient signs of recovery in response to the increase in public sector capital spending. In addition to public investment and a record harvest, we expect higher real wages and greater access to international capital markets to boost growth. We estimate that the economy will expand by 2.7% in 2017, following a 2.3% contraction in 2016.

On a separate note, the trade balance deteriorated in February due to lower exports. On a seasonally-adjusted and annualized basis, the quarterly trade surplus fell to USD 1.8 billion in February, from USD 4.5 billion in January. As a result, the 12-month rolling surplus reached USD 2.0 billion, still broadly stable from 2016 and higher than in 2015 (deficit of USD 3.0 billion). While the 9.8% MoM decline in exports can be mostly attributed to data volatility, we expect the trade balance deterioration to continue due to a stronger currency and the expected pick-up in internal demand (in fact, consumer goods imports have been strong) – factors that will be partly offset by an increase in manufacturing exports to Brazil and the sale of grains in the external market.


Supermarket sales (ABRAS) rose in February, resuming a moderate recovery path. According to news channel Valor Pro, supermarket sales rose 0.5% month-over-month, extending gains seen in January (3.7% month-over-month) following a 3.1% decrease in December. Excluding the decline in December, supermarket sales have shown a moderate recovery path since 2Q16. The two latest ABRAS readings are consistent with rising core retail sales in both January and February. (we forecast a 0.4% month-over-month increase in core retail and a 0.9% decline in the broad segment, which includes vehicle sales and construction material).

Construction confidence (FGV) increased 0.9% in March boosted by expectations. Construction sector confidence rose 0.9% month-over-month, in line with the upward trend in industry and consumer confidence, which also posted gains in March. The increase was more influenced by the expectations component (+2.0%) than by the current situation component (-0.9%). Construction confidence improved between May and September 2016, remaining virtually stable since then. Construction sector capacity utilization declined somewhat and suggests that production of typical construction inputs will remain stable in February and March.

The energy agency (ANEEL) approved an extraordinary adjustment in the tariffs of electricity distributors, reversing a charge linked to the Angra 3 nuclear plant. The estimated impact of this extraordinary adjustment over the IPCA is around -0.35 p.p. in April, +0.30 p.p. in May and +0.02 p.p. in June.

The BCB placed the full offering of 10,000 FX swaps. After closing yesterday, the Central Bank called a roll over auction of up to 10,000 contracts for today.

IBGE’s Service Sector Survey (PMS) with data on the sector’s revenues will come through today at 9:00 AM (SP time), as well as the BCB’s credit report release (10:30 AM SP time).


Mexico’s labor market continues showing signs of strength. February’s unemployment rate came in at 3.4%, below our forecast (3.6%) and market expectations (3.5%), and 0.8 p.p. less than the print recorded in February 2016. On the margin, the unemployment rate decreased to 3.5% in February (January: 3.6%). We highlight that formal employment is still growing at a robust pace (February: 4.2% y/y), although real wage growth was negative in the first two months of 2017 (given the increase in inflation caused by the spike of gasoline prices). Looking ahead, we believe that the labor market will deteriorate, as GDP growth slows. Tighter macro policies and weaker private investment (given the uncertainty of bilateral relations with the U.S.) will affect employment growth. Hence, we expect the annual average unemployment rate to increase to 4.3% in 2017 (2016: 3.9%).


The labor market continued to loosen in February with higher unemployment rate, falling labor force participation, and weak job growth. The unemployment rate for February increased half a percentage point from last year, to 10.5%, taking the indicator for the quarter ending in February to 10.3% (one year before: 10.2%). Adjusted for seasonal factors, the national unemployment rate was broadly stable from December at 9.3%, but increased to 9.4% in the moving quarter (4Q16: 9.1%). Additional signs of weakness in the labor market include slowing job creation and the falling labor force participation rate (to 64.1% in the moving-quarter ending in February, from 64.7% one year before). Employment grew only 0.3% y/y. The main contributor to the 72 thousand jobs created in the quarter from the prior year was the real estate sector (+103 thousand), while construction continues to shed jobs (-59 thousand). Meanwhile, public sector employment had its largest contraction (-7.8%) since the international financial crisis, as fiscal consolidation advances. A weak labor market could be a drag to consumption in the short-term. As the central bank is concerned with an excessive deceleration of activity, this would support additional monetary loosening ahead. ** Full story here.


Macro Vision: Has Europopulism been stopped? Support for populist parties in Europe appears to have peaked and may well decline ahead as the economy continues to recover, migration flows dwindle, EU leaders understand the need to return power from Brussels back to member countries, and the examples of recent populist governments start to affect voter opinion. However, the aggregate picture can hide real danger at the country level. With a track record of feeble growth and strong immigration inflows, Italy appears to be a weaker link than France. ** Full story here.


Fuente: ITAU

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