Moody’s upgraded Argentina’s rating to B2 from B3

The rating agency noted that the government has announced reforms to address long existing distortions in the economy.

Talk of the Day

Yesterday, rating agency Moody’s upgraded the Government of Argentina’s rating to B2 from B3, with a stable outlook. The rating agency noted that the government has announced tax, pension and labor reforms following its electoral win in October’s legislative midterms. The reforms address long existing distortions in the economy and aim to bolster the economic recovery by promoting increased private investment. In particular, the reforms point to reduce corporate taxes and lowering the cost of hiring. A change in how pension payments are calculated, will likely help reduce expenditures and the fiscal deficit. Finally, the government is also continuing to reduce energy subsidies. Last month, S&P also raised Argentina’s long-term foreign currency rating to B+ (from B).

The INDEC will publish the manufacturing and construction data for October today at 5:00 PM (SP time).


The minutes of the November monetary policy meeting hint that the upcoming inflation report (IPoM) would reiterate the scenario of stable rates for a prolonged period. The board voted unanimously to leave the policy rate at 2.5% in November, with the relevant options presented by the technical staff still being no rate move or implementing a 25-bp rate cut. Overall, the view was that a favorable external scenario is aiding the activity recovery, in turn, supporting the target convergence of inflation over the relevant horizon, as anticipated in the 3Q17 IPoM. Yet, the board remains cautious, acknowledging the risk that the convergence of inflation to the target takes longer than anticipated.

In all, the board portrays the view that between September and now, not enough has happened to demise the relevance of the baseline scenario. Headline inflation has been lower than expected in the short-run, but core measures are consistent; global activity is somewhat improved and the closing of the output gap is still projected. So, the expectation that the convergence of inflation to the target in the medium-term has not been compromised, even if the timing of the convergence may be somewhat slower. However, one board member did appear to be leaning towards more easing, but noted that the rate cut option at this meeting was mitigated by the ending or reversion of some of the main risks outlined at the October meeting (declining two-year inflation expectations and a rise in real market rates).

We expect the central bank to keep the policy rate stable at 2.5% at the December meeting as well as most of next year. Nevertheless, if the activity rebound underwhelms (delaying the narrowing of the output gap), and some inflation expectations stay suppressed, we cannot rule out additional rate cuts. ** Full Story here.

The industrial production index expanded 5.0% year over year in October (1.1% in September), leading to growth of 3.8% in the quarter ending in October (-1.7% in 2Q17). The 10.5% year-over-year gain in mining production (3.6% in September), contributed with 4.6 p.p. to the headline industrial production growth in October. Meanwhile, manufacturing production increased a mild 0.6% year-over-year (Bloomberg market consensus: 4.2%; our call: 5.9%). Once adjusted for seasonal and calendar effects, manufacturing rose 0.1%, a notable slowdown from the previous three months. Manufacturing was dragged down by chemical, vehicle parts and beverage-related manufacturing. In the quarter ending in October, mining production is up 7.8% (-3.4% in 2Q17), manufacturing grew 0.3% (-0.8% in 2Q17) and utilities posted growth of 2.1% (above the 1.3% in 2Q17).

We expect growth of 1.7% this year, stable from the 1.6% recorded in 2016. Going forward, higher global growth (supporting copper prices), the monetary stimulus already in place, alongside improved confidence and credit indicators, will support growth. Nevertheless, weak construction and manufacturing alert that such a recovery is not set in stone. ** Full Story here.

Today at 10:00 AM (SP time), INE will release the national unemployment rate for the quarter ending in October. Both we and the market consensus sees the unemployment rate reaching 6.6%, up 0.2 p.p. from one year ago, with unfavorable dynamics to persist.


The consolidated public sector posted a primary surplus of BRL 4.8 billion in October, performing better than our forecast (2.3 billion) and market consensus (4.1 billion). The consolidated primary deficit accumulated over 12 months increased to 2.9% of GDP, from 2.4%, due to the elimination of an elevated base of extraordinary revenues coming from the repatriation of assets in October of last year. The central government’s result, as published by the National Treasury, was a surplus of BRL 5.2 billion in October (our estimate: 2.5 billion; Central Bank methodology: 5.0 billion), with the surprise reflecting lower discretionary spending, which will incorporate the effects of the announced budget unfreeze only in the last two months of the year. Regional governments and state-owned enterprises reported a surplus of BRL 0.4 billion and a deficit of 0.6 billion, while we expected a surplus of 0.6 billion and a balanced result, respectively. With the positive surprise in revenues, both recurring and extraordinary, mandatory spending coming in below what was budgeted, and better results for regional governments and state-owned enterprises, the primary surplus for the year will likely be slightly better than the established target of BRL 162 billion (-2.4% of GDP) for the consolidated public sector.

Public debt dynamics remain unfavorable. The general government’s gross debt increased to 74.4% of GDP in October from 73.9% in September, while public sector net debt retreated to 50.7% of GDP from 50.9% during the same period. If approved, pension reform will be essential for public debt dynamics by reversing the current upward trend in pension expenses and representing a key step to complying with the constitutional spending cap, which could generate the necessary conditions for the structural decline in interest rates and a firmer rebound in economic activity. ** Full Story here.

FGV’s economic uncertainty index rose slightly to 112.8 in November. The increase is small compared to the accumulated decline between May and October, so the index remains well below the average in the 2015-2016 period (127.7). The survey is relevant for mapping part of the economic agents’ risk aversion that was not explained by traditional financial conditions indicators, given that the analysis of newspaper accounts for 70% of the aggregate index. FGV also released its monthly services survey: confidence in the services sector eased 0.1% to 87.7 – virtually stable after four months on the rise.

The nationwide unemployment rate (PNAD) for October will come out today at 9:00 AM (SP time). We expect it to decrease 0.1 p.p. to 12.3% (12.5% according to our seasonal adjustment), in line with the Bloomberg market consensus.


The Ministry of Finance (Hacienda) will announce October’s fiscal balance today at 6:30 PM (SP time). We expect the fiscal deficit indicators to continue narrowing, showing fiscal consolidation makes headway.


The institute of statistics (DANE) will release the October unemployment rate today at 1:00 PM (SP time).We expect the urban unemployment rate to rise to 9.8% in October (in line with the median of market expectations), resulting in the national unemployment rate coming in at 8.5% (8.3% on year ago).

Fuente: ITAU BBA

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