Midterm Election Race Heating Up
With the nominations of the pre-candidates for the August primaries, the run-up to the October 22nd midterm elections has formally begun. While the government will fight to reinforce its “first minority” in both the House and the Senate, both politics and the market will be watching, in particular, one election in one district: the senate race in the province of Buenos Aires.
That’s not only because it’s the most important district, with 37% of the total votes -- but also because the battle around the election of national senators has the flavor of an “avant premier” for the 2019 presidential election. Cristina Fernández de Kirchner, Sergio Massa and Florencio Randazzo all have clear presidential aspirations for 2019, and are using the midterms to compete against one another, with the intention of fighting for the peronist vote.
Former president Kirchner is far from politically dead. The electoral spectrum in the main electoral district is split relatively evenly between her, Sergio Massa and Esteban Bullrich (of Cambiemos), with participation rates of between 25% to 30% each. Kirchner holds a 3-4 pp lead over Massa, while Randazzo is trailing, with 5% to 7% of voter intentions.
A victory for Kirchner in the province of Buenos Aires would be painful for both the government and the market – less due to the loss of one or two senate seats in Congress than over the possibility that it might stir the ghost of a return of populism and economic interventionism in 2019.
In our last monthly report, we pointed out that, despite some mixed activity indicators, at first look April’s poor industrial production (EMI) and retail sales signaled a mild supply-side recovery. A month later, recently published activity data confirm that view.
June tax collections also once again showed a positive outlook. Inflation-adjusted activity-linked tax collection grew 6.2% y/y. In any case, this data promises further growth for Q2 GDP, and positive momentum for H2 2017.
Yet recently published Q1 balance of payment data has reaffirmed the country’s relatively poor trade results. The current account deficit plunged to $6.87 billion in Q1. That is the harshest quarterly deficit ever, and puts the annual current account figure in the red to the tune of $16.85 billion - another record. This sets a yellow light on peso investment.
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