Argentina´s Economic Outlook 1Q 2012

Informes Trimestrales

 

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Argentina´s Economic Outlook 1Q 2012

Primer trimestre
2012

Since March there has been a sharp deterioration in economic and financial conditions that have led to a large increase in the parallel exchange rates and in the Argentine credit spreads, to higher fiscal deficits at the national and provincial levels and to a sharp deceleration in economic activity that is likely to end in a recession.

Recent policy decisions (namely the tight foreign exchange and import controls and the nationalization of YPF) are rapidly eroding investors confidence and are the main reason for the increase in the parallel exchange rate and the Argentine credit default swap that now exceeds 1400 bps.

As Argentina does not have a problem in the stocks (i.e. in international reserves, debt or in the banking system), the economy does not have an obvious trigger for a financial crisis. The largest vulnerability is in the exchange rate front.

The largest risk is stagflation, namely a “real economy crisis” as opposed to a “financial crisis”. The spread in the parallel exchange rate is a leading indicator of problems regarding inflation and growth.