ARGENTINA – Current account widened in 1Q17; Weaker-than-expected activity in April

A stronger currency and the recovery in internal demand led to a deterioration of the external accounts.

Argentina’s current account deficit widened in 1Q17. The current account registered a USD 6.9 billion deficit in 1Q17, compared with USD 4.9 billion one year ago. The rolling four-quarter deficit increased to USD 16.8 billion (3% of GDP) from USD 14.9 billion (2.7% of GDP).


A stronger currency and the recovery in internal demand led to a deterioration of the external accounts.The trade balance of goods in 1Q17 deteriorated to a deficit of USD 0.5 billion, from a USD 181 million surplus in the same quarter of 2016. The growth in exports (1.8% YoY) was surpassed by a 7.4% increase in imports. The non-financial-services account deficit increased by USD 672 million year over year, to USD 3.2 billion, fully explained by a wider deficit in the travel account. The deficit in financial services also increased, to USD 3.7 billion from 2.9 billion one year ago, mostly due to higher interest payments (consistent with the sizable debt issuance since last year).

The deficit in the current account was more than financed by portfolio inflows (USD 16.5 billion in 1Q17 compared with USD 4.8 billion one year before). Inflows to non-financial public sector securities reached USD 14.1 billion. Meanwhile, FDI reached USD 2.7 billion, an improvement from the USD 2.1 billion recorded one year before. As a result of these and other net inflows, the central bank increased international reserves by USD 11.5 billion.

We expect further deterioration of the current account ahead. Trade balance deteriorated sharply in 2Q17 according to data available until May and we expect a similar trend in the travel account. We have increased our forecast for the current-account deficit to 3.9% of GDP this year (from 3.5% previously).

On a separate note, economic activity remained flat on a sequential basis in April. The EMAE (official monthly GDP proxy) remained unchanged relative to March, bringing quarter-over-quarter growth to 0.5% (annualized), following a strong 4.3% gain in 1Q17. On a year-over-year basis, the index expanded by 0.6% year over year, but the seasonally-adjusted index (which also corrects the series for calendar effects) was up by a stronger 1.9% rate. In any case, activity in April was weaker than the figure indicated by IGA (GDP proxy published by OJF consulting firm), which increased 0.3% between March and April and 2.3% year over year.


On a year-over-year basis, primary activities (agriculture and fishing) and construction lead growth, with both recording a 5.0% expansion in the quarter ended in April. Service sectors are expanding, but at a still sluggish pace (1.0% in the quarter), while manufacturing is falling. On a sequential basis construction is expanding strongly (14% qoq/saar), while Agriculture and Services are losing momentum after posting high growth rates. Manufacturing is falling also on a sequential basis.

Looking ahead, we expect Argentina to continue growing around trend. We note the carry-over of EMAE for 2Q17 is consistent with a moderate sequential growth in the period. In terms of sectors, we expect Services to perform better, as consumption improves on the back of higher real wages, while construction will continue to benefit from fiscal spending. On the other hand, the strong exchange rate and weak growth in Brazil will likely curb any recovery in the manufacturing sector.

Fuente: ITAU

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