Growth at Last
Chief of Cabinet Marcos Peña might have been in a hurry to announce some still-unpublished news. But despite his politically-driven urgency, in the run-up to the October midterm elections, he seems to be right. Though April activity data still shows mixed results, the general economic picture has been strengthening in recent months, to the point where the economy is technically leaving the 2016 recession behind. Last week’s publication of the EMAE (the monthly GDP proxy) signals the first positive annual GDP growth indicator of Q1 2017. The INDEC monthly activity index reported 0.8%y/y growth for March. That brought Q1 growth to 0.2%y/y -- the first positive GDP growth rate since the 0.6% of Q1 2016.
Contraction of the EMI and ISAC in April had an attenuating factor: Easter holidays. The time shift in the religious holidays meant that April 2017 had two fewer working days than last year. After adjusting for the difference, the April 2017 EMI was 6.2% y/y above last year’s level, not down -2.3%y/y. Furthermore, April and May activity-linked tax collection rose significantly in both months, suggesting further growth in Q2.
Of course, concern remains over whether this will be a short-lived recovery, to be followed by a further contraction, as has happened over the last five years. But since the current macroeconomic model is based on more sustainable grounds than the excessively distorted micro-managed environment implemented at the end of the Kirchner´s administration (mainly to overcome gross macro inconsistencies), this new growth cycle enjoys a better outlook.
The newly declared external assets also play a role, as a potential source of financing and investment. Due to the tax amnesty, domestic agents declared close to $120 billion (or 21.5% of GDP) of foreign assets, which also represents close to eight years of the current account deficit. And 77% of those assets are relatively liquid.
The main macro concern is fiscal. Even though in April the decline in the primary deficit moderated (closing at AR$ -19 billion, compared to AR$ -11 billion last year), interest payments reached a new monthly high, of AR$ 30.3 billion (compared to just AR$ 6 billion last year), or nearly AR$ 60 billion ytd, compared with AR$ 25 billion in January – April 2016.
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