Argentina's economy shrinks as the rest of the region grows – 17/03/2019

In 2019, Argentina moves on the contrary from the rest of South America. While other economies, with the exception of Venezuela, a favorable scenario, with single-digit inflation and growth rates of between 1 and 4%Mauricio Macri will be re-elected amid a recession and soaring prices.

Last week Itaú, the largest bank in the region, organized a seminar at its headquarters in San Pablo, where he presented his digital business projects and his projections for the six South American countries in which he operates: Brazil, Argentina, Uruguay, Paraguay, Chile and Colombia.

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Expectations are positive, even for the management of Jair Bolsonaro in Brazil who faces several clouds of thunderstorms. The growth forecasts for the region's largest economy are down while Bolsonaro's luck is tied to pension reform which, for some badysts, is not going as fast as expected. However, from Itaú, they are convinced that "Government's popularity will help reform take shape. And this will save a billion trillion reais, "said Thiago Macruz, an badyst at Itaú BBA, which in turn should help lower the interest rate (currently 6.5%) and unemployment, which will be 11.8% this year.

Although Itaú maintains the forecasts of 2% growth In Brazil for 2019, Juan Carlos Barboza, chief economist of the Southern Cone Bank, admitted that "there is a risk that it is less. The labor market is losing momentum. Brazil is part of the intensive fiscal unit and will remain so for a few years. "

"The outlook is positive for the whole region, with the exception of Argentina", Which corresponds to the category wait and see." We see an economy with fewer fiscal imbalances that he will probably contract slightly again this year, higher than 1%, mainly because of the negative statistical reporting effect left by 2018. "With regard to inflation, Barboza said that" the rate is still accelerated. Our forecasts for this year went from 30 to 35%. This forces the Central Bank to be very strict in its monetary policy. "

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Nevertheless, they believe that the economy will begin to recover in the second quarter, mainly due to agriculture. In this prognosis, it is implicit that either Macri is reelected, or that a third way is imposed, like that of Roberto Lavagna. "Our basic scenario is the continuity of economic policy, the budget adjustment plan would therefore continue. The year would end with a very small primary deficit – about 0.5% – which would allow the economy to recover, as Argentina is attractive to the markets. . "

"The market is open to all countries in the region, with the exception of ArgentinaSaid Macruz, and said that this year, we expect Latin American debt issues to reach the USD 75,000 million. The figure is very far from the USD 148,000 million which were issued in 2017. With the amount planned for this year, the region will have a favorable balance. He will go out to cancel the debts by 100,000 million USD and will issue USD 75,000 million, which will imply that he will be delevered by U25 billion dollars. This contraction is due to the fact that governments prefer to finance themselves on the local market before looking for money abroad.

The scenario could change if the situation in Venezuela is defined and if a new government decides to face a restructuring of the debt of this country. If this were to happen, we should add others USD 60,000 million to the broadcast menu of the region. But the restructuring of Venezuela is not part of the short-term scenario of Itaú. "It could take 24 or 36 months until the concrete"They estimate.

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October 27 will be the first round of the presidential election in the two banks from the Rio de la Plata. And in case there is a second round, again, it's time to share a date, November 24th. Until now, coincidences happen, because the contexts are very different. In Uruguay, even without an official candidate, the Frente Amplio will go for fourth period to the presidency and the national party will seek to dislodge him. The polls are in pairs, but in the eyes of the market, while elections in Argentina cause peaks of stress, Uruguayan elections do not scare. "We do not expect any changes in market-friendly policy, which wins," they say in Itaú. Market confidence in the Uruguayan model is reflected in debt problems: every time the country seeks funding, the supply it receives is: six times higher the amount to be issued. Although the outlook for neighbors is positive, the bank warns that they face the challenge of deceleration. The country is expected to grow by 1% this year and inflation by 7.5%. "Uruguay must make progress in fiscal consolidation because it is facing a deterioration in the debt-to-GDP ratio a threat to the investment grade rating"Let the country hold.

With 4%, Paraguay has the highest growth rate this year. The economy of this country is in a virtuous circle of 15 years of expansion, with annual inflation of 4% and unemployment of 6%.

In Colombia, the Itaú projection shows an increase in the GDP of 3.3%, although the bank warns that in this country "there are persistent macroeconomic imbalances and less investment opportunities than in other markets. "

For Chile anticipate that it will play in favor the recovery in the price of raw materials, with GDP growth of 3.2% and inflation of 3% in 2019.

In Argentina, Itaú has 86 branches and ranks 13th in terms of credit market share. Milton Maluhy, Vice President of Itaú Unibanco, stresses that "our participation in the Argentine market is depending on the level of risk and volatility that has always existed in this country. We have always been very conservative. Due to the size of the bank in Argentina, the risks we badume are limited. It is still early to make a more positive bet. "However, they hope the country will comply with the fiscal adjustment agreed with the IMF and pave the way for in 2020, the economy grows by 3%. "In Argentina, we focus on business banking – being a small bank, growth will come from digital. We want to be considered the best digital bank in Latin America. "