Overview of Argentina's Economy
Growth
According to official data, economic growth during 2007–11 was very high, except for a short-lived slowdown in the wake of the Lehman crisis (Box 1). Official GDP series imply an average growth of real GDP during 2007–11 of 6.9 percent; excluding 2009 the average growth was 8.4 percent, only slightly lower than the 9 percent average real GDP growth achieved by Argentina in the four years that followed the crisis of 2002. The growth performance during 2007–11 was weaker according to estimates from private analysts. As an illustration, an average of a small sample of private analysts’ estimates yields an average output growth rate of 4.3 percent for 2007–11. However since 2012 and the inflation crisis that hits severely the country, the growth is now almost equal to zero and the country seem to be entering in recession since the beginning of the year.
Growth has been based (for 2007-2012)
Growth
According to official data, economic growth during 2007–11 was very high, except for a short-lived slowdown in the wake of the Lehman crisis (Box 1). Official GDP series imply an average growth of real GDP during 2007–11 of 6.9 percent; excluding 2009 the average growth was 8.4 percent, only slightly lower than the 9 percent average real GDP growth achieved by Argentina in the four years that followed the crisis of 2002. The growth performance during 2007–11 was weaker according to estimates from private analysts. As an illustration, an average of a small sample of private analysts’ estimates yields an average output growth rate of 4.3 percent for 2007–11. However since 2012 and the inflation crisis that hits severely the country, the growth is now almost equal to zero and the country seem to be entering in recession since the beginning of the year.
Growth has been based (for 2007-2012)
- On the demand side: Both consumption and investment grew strongly. Private consumption expanded fast on the back of solid employment and income growth and negative real interest rates, while public consumption grew as the government ramped up social spending, including transfers to low income families. Investment also expanded vigorously due primarily to an increase in durable equipment investment in the agricultural sector, the manufacturing sector (most notably in the automobile industry), and construction.
- On the offer side: On the supply side, the still depreciated real exchange rate (relative to the level prior to the 2002 crisis), together with the government’s initiatives to support industry provided a boost to the manufacturing sector, particularly automobile production. At the same time, strong (and unexpected) gains in the external terms of trade supported the rapid expansion in the services sector, especially wholesale, retail, transportation and communication.
- Fragile outputs: The economy mainly benefits from the Support of an expansionary macroeconomic policy and lower oil prices but it will not be sufficient to offset the impact of worsening external conditions. Exports will undoubtedly contract further given the slowdown in main trading partners like China, the terms of trade are expected to continue deteriorating, and persistent foreign exchange controls will remain a drag on activity and depress business confidence. For the moment the government has based its policy on higher public spendings to support household consumption but it won't be enough to outweigh the contraction in investment and exports.
- A growing deficit: Lower energy prices are estimated to reduce energy subsidies by about ½ percent of GDP in 2015. However, falling export taxes (owing to a worsening terms of trade), weak import tariffs (owing to the FX controls and contraction in economic activity), and increasing spending on wages and pensions have widen the federal primary deficit to 1.6 percent of GDP (4.1 percent of GDP excluding transfers from BCRA and ANSES) this year.
- A contraction of the trade surplus: Lower energy prices are expected to improve the trade balance by about 0.4 percent of GDP in 2015. However, international prices for Argentina’s main exports are projected to fall further in 2015 (by 20 percent for soy and 31 percent for wheat), reducing export receipts from agriculture by almost 20 percent this year. Weak external demand (particularly from Brazil and China) and deteriorating competitiveness will also depress exports.
Inflation:
- Inflation has been incredibly high during the last few months, the president even had to stop the publication of official figures from decembre 2015 to March 2016 not to scare the private sector. For exemple, National statistics institute Indec said consumer prices rose 4.2% in May from the previous month, driven by higher food, transportation and housing costs. Indec said the price for food and beverages was up 3.7%, while transportation and communications rose 5.6%, housing increased 5.2% and other goods and services rose 16.1%.
- International experience suggests that a successful disinflation strategy could be achieved through a two-pronged approach to remove both fiscal and monetary imbalances. Successful transitions from high (above 50 percent) to low inflation (below 10 percent) are typically built on greater fiscal discipline and a tightening of monetary conditions. Following the initial spike in inflation from exchange rate unification, quickly bringing down the inflation rate to single digits would require anchoring inflation expectations by re-establishing monetary and fiscal policy credibility.
Comparaison of Argentina's Inflation With Other Economies (OECD)
Exchange rate and real interest rate:
- The combination of weak external demand, fast eroding competitiveness, and compromised access to international capital markets fueled balance of payments pressures in 2014. The widening current account deficit, lower FDI inflows (¾ percent of GDP in December 2014, one-third of their level at end-2012), and continued payments on foreign currency-denominated public debt (totaling US$ 5.5 billion in 2014) continued to put international reserves under pressure throughout 2014. In September 2014, gross reserves fell to a low of about US$27 billion, and the gap between the official exchange rate and the parallel market rate (an important indicator of confidence in the Argentine peso) rose to 90 percent.
- Rising inflation and expectations of future depreciation reduced the demand for money in 2014 and 2015. In order to protect the currency after the January 2014 devaluation, the interest rate on LEBACs was almost doubled, from 16 percent at end-2013 to 29 percent in early February 2014; thereafter, the rate stabilized at 27 percent for the rest of 2014, before declining to 26 percent in early 2015. On the deposits side, rates have fallen gradually in the past year, with the BADLAR rate (on large short-term time deposits) at 21 percent in April 2015, down from 26 percent 12 months ago, and remaining negative in real terms.
- The presence of a parallel exchange rate market with a large and sustained premium is another signal that the peso is overvalued. This is particularly the case given that the emergence of a parallel market has been prompted by the introduction of foreign exchange controls (Box 2). Quantitative estimates for REER misalignment suggest a significant overvaluation of the Argentine peso. Standard analytical methodologies to estimate exchange rate misalignment (e.g., CGER, EBA) are not easily applicable to Argentina and provide a relatively large range for the peso overvaluation, between 5 and 40 percent.
Balance of payment:
Economic Sectors
overview
- Without access to external financing in 2015 and a growing current account deficit (projected to reach -1.7 percent in 2015), the imbalances in both current and capital accounts will lead to central bank sales of foreign currency. Taking into account continued access to extraordinary external financing (largely the swap line with China) as well as expected IFI inflows, gross international reserves will fall to US$21 billion by year-end (less than four months of imports).8 A significant share of these reserves will comprise FX reserve requirements and deposits of commercial banks at the BCRA (which amounted to US$8.1 billion at end-2014).
Economic Sectors
overview
- Argentina is the 47th largest export economy in the world and the 43rd most complex economy according to the Economic Complexity Index (ECI). In 2014, Argentina exported $69B and imported $64B, resulting in a positive trade balance of $5B. In 2014 the GDP of Argentina was $537B and its GDP per capita was $12.5k.
PRODUCTS
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DESTINATION
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source: AJG Simoes, CA Hidalgo. The Economic Complexity Observatory: An Analytical Tool for Understanding the Dynamics of Economic Development. Workshops at the Twenty-Fifth AAAI Conference on Artificial Intelligence.
PRODUCTS
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Agriculture
[6]Récords en cosechas y exportación de granos
[7] The Statesman's Yearbook. Macmillan Publishers. 2009
[8]"Nivel de actividad". Economy Ministry.
[9] CIA Factbook Argentina
- Argentina is one of the world's major agricultural producers, ranking among the top producers in most of the following, exporters of beef, citrus fruit, grapes, honey, maize, sorghum, soybeans, squash, sunflower seeds, wheat, and yerba mate.[6] Agriculture accounted for 9% of GDP in 2010, and around one fifth of all exports (not including processed food and feed, which are another third). Commercial harvests reached 103 million tons in 2010, of which over 54 million were oilseeds (mainly soy and sunflower), and over 46 million were cereals (mainly maize, wheat, and sorghum).[6] Soy and its byproducts, mainly animal feed and vegetable oils, are major export commodities with one fourth of the total; cereals added another 10%. Cattle-raising is also a major industry, though mostly for domestic consumption; beef, leather and dairy were 5% of total exports.[7]
- Mining and other extractive activities, such as gas and petroleum, are growing industries, increasing from 2% of GDP in 1980 to around 4% today.[8] The northwest and San Juan Province are the main regions of activity. Coal is mined in Santa Cruz Province. Metals and minerals mined include borate, copper, lead, magnesium, sulfur, tungsten, uranium, zinc, silver, titanium, and gold.
- Industry’s share of GDP in Argentina rose from 16.7 percent in 2002 to 18.1 percent in 2010, while manufactured products made up 35 percent of total exports over the last year. Leading sectors by production value are: Food processing and beverages; motor vehicles and auto parts; refinery products, and biodiesel; chemicals and pharmaceuticals; steel and aluminium; and industrial and farm machinery; electronics and home appliances.
- The service sector is the largest contributor to total GDP, accounting for over 60%. [2] Argentina enjoys a diversified service sector, which includes well-developed social, corporate, financial, insurance, real estate, transport, communication services, and tourism. The telecommunications sector has been growing at a fast pace, and the economy benefits from widespread access to communications services. These include: 77% of the population with access to mobile phones, 95% of whom use smartphones [9].
[6]Récords en cosechas y exportación de granos
[7] The Statesman's Yearbook. Macmillan Publishers. 2009
[8]"Nivel de actividad". Economy Ministry.
[9] CIA Factbook Argentina
Economic Complexity of Argentina
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Product Space
The product space is a network connecting products that are likely to be co-exported and can be used to predict the evolution of a country’s export structure. The economy of Argentina has an Economic Complexity Index (ECI) of 0.597 making it the 43rd most complex country. Argentina exports 187 products with revealed comparative advantage (meaning that its share of global exports is larger than what would be expected from the size of its export economy and from the size of a product’s global market). |
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source: AJG Simoes, CA Hidalgo. The Economic Complexity Observatory: An Analytical Tool for Understanding the Dynamics of Economic Development. Workshops at the Twenty-Fifth AAAI Conference on Artificial Intelligence.
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