Argentina GDP Q4 2015


Argentina returns to capital markets following more than a decade of isolation

Since taking office last December, President Mauricio Macri, has accomplished his key campaign promises such as scrapping currency controls and reaching a deal with the country’s holdouts, thus ending 15 years of isolation from international capital markets. As part of the overhaul, the new government reformed the country’s statistical office, INDEC, by changing the staff and the statistical methodology. Following a period of data scarcity after the government declared a “national statistical emergency” in December, the institution recently published official GDP data for the third and fourth quarters of 2015 with information on the supply side of the economy. INDEC also revised the GDP data for the first two quarters of last year.

According to a preliminary estimate, the Argentine economy expanded 3.5% year-on-year in the third quarter broadly due to a better-than-expected soybean harvest, which boosted agricultural production. Positive developments in Q3 were also recorded in the construction and service sectors, which expanded 7.3% and 3.6%, respectively. The economy lost momentum in the final quarter of the year and GDP grew just 0.9% on an annual basis. The deceleration was due to slowdowns in most of the sectors of the economy with agriculture and manufacturing recording steep contractions. For the full year 2015, the Argentine economy expanded 2.1%, which was a significant improvement over the 0.5% increase tallied in 2014.

This month, the new government took a significant step toward resolving the dispute with the holdouts when both Senate and Congress approved the deal that Macri had previously agreed upon with the country’s biggest creditors. The move was soon followed by a U.S appeals court ruling which cleared the way for the Argentine government to regain access to international credit markets after more than a decade of isolation. The government is believed to have settled the sale of USD 15 billion in sovereign bonds on 18 April. According to officials, the proceeds of the bonds will be used to pay around USD 8.0 billion to the holdouts and also to reduce the budget deficit without incurring drastic cuts in public spending or stoking inflation, which is already in the double-digits. Once the holdouts have been paid, the injunctions that prevent Argentina from serving other creditors of restructured debt will be lifted. Alberto Ramos, Chief Latin America Economist at Goldman Sachs comments:

“The ongoing process of economic reforms initiated under the current administration is expected to eventually reduce lingering macroeconomic imbalances and bring the economy out of stagflation. Above all, the new Argentinean bonds would still likely offer a relatively high spread in a low-yield environment.”

Improved relationships with the international community are already bearing fruit. Last month, the government announced that it has secured USD 3.5 billion in financing from the World Bank over the next two years to help develop water, health and housing projects. Moreover, on 15 April, Moody’s upgraded Argentina’s credit rating from Caa1 to B3 citing an improvement in economic policy. On the other side of the coin, the government’s reforms might turn out to be politically costly as high inflation due to the recent depreciation of the currency, job cuts in the public sector and the end of populist reforms have the potential to trigger public unrest.

GDP growth is likely to decelerate in the short term as the economy slowly adjusts to the new government’s policies. Moreover, external threats, such as the prolonged recession in Brazil and low commodity prices, are clouding the outlook for this year. However, growth will likely speed up in the medium term amid an improvement in the external sector and the country’s return to international credit markets. The government expects the fiscal deficit to reach 4.8% of GDP this year and 3.3% of GDP next year. LatinFocus panelists are more pessimistic than the government and expect the fiscal deficit to hit 5.2% this year before shrinking to 3.9% in 2017. Our panelists expect the economy to contract 0.7% this year, which is down 0.4 percentage points from last month’s forecast. For 2017, panelists expect the economy to accelerate significantly and expand 2.9%. Moreover, our panel expects non-official GDP to contract 0.7% this year before rebounding and increasing 3.3% in 2017.

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Argentina GDP Chart

Argentina GDP Q4 2015 0

Note: Year-on-year changes of GDP in %.
Source: Argentina National Statistical Institute (INDEC) and LatinFocus Consensus Forecast.

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