Thought September 14, 2020 / 09:30 pm UTC

Argentina GDP Likely Shrank by a Fifth in Q2

By Priscila Robledo

After kicking off the year with a -6.4% q/q, -5.4% y/y mark in Q1, we forecast Q2 GDP at -16.1% q/q, -19.6% y/y. The economy started to recover in May, but the recovery has been losing steam lately with the worsening of the COVID-19 situation. 

Figure 1: We Expect an Unprecedented GDP Contraction in Q2 (%, y/y)

Source: Datastream, Continuum Economics. Note: Dotted Line indicates our forecast.

Q2 GDP will be released on September 22. Except for mining and teaching, which together account for less than 10% of the GDP, all the rest of the sectors posted contractions. The most negative impact came from manufacturing, followed by construction, retail sales, agriculture, and transport. 

From May to July activity posted positive m/m figures, but we expect activity to turn to the negative m/m territory in August as the government was forced to pause the reopening process in mid-July. Keep in mind, however, that despite the monthly activity expansions registered in May-July, y/y figures remained to show double-digit contractions across most sectors. 

While we still believe the economy reached a bottom in Q2, with the loss of momentum of late we are less optimistic about the speed of the recovery from Q3 onwards. We are now expecting a -13% y/y figure for Q3 and -11% for the full year. Recall that Argentina is the LatAm country where the COVID-19 situation is worsening at the fastest speed. 

For 2021 we believe the economy will continue to struggle in H1, especially since distortions introduced by government policies delay some effects of the pandemic to 2021. Assuming a vaccine becomes available by summer 2021, the recovery should gain steam in H2 2021. Yet with the distortions present in the economy, including multiple FX rates and artificially low inflation, we do not believe the economy will return to pre-pandemic levels of activity before 2023. 

4Cast Ltd. and all of its affiliates (Continuum Economics) do not conduct “investment research” as defined in the FCA Conduct of Business Sourcebook (COBS) section 12 nor do they provide “advice about securities” as defined in the Regulation of Investment Advisors by the U.S. SEC. Continuum Economics is not regulated by the SEC or by the FCA or by any other regulatory body. This research report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Nonetheless, Continuum Economics has an internal policy that prohibits “front-running” and that is designed to minimize the risk of receiving or misusing confidential or potentially material non-public information. The views and conclusions expressed here may be changed without notice. Continuum Economics, its partners and employees make no representation about the completeness or accuracy of the data, calculations, information or opinions contained in this report. This report may not be copied, redistributed or reproduced in part or whole without Continuum Economics’s express permission. Information contained in this report or relied upon in its construction may previously have been disclosed under a consulting agreement with one or more clients. The prices of securities referred to in the report may rise or fall and past performance and forecasts should not be treated as a reliable indicator of future performance or results. This report is not directed to you if Continuum Economics is barred from doing so in your jurisdiction. Nor is it an offer or solicitation to buy or sell securities or to enter into any investment transaction or use any investment service.
Analyst Certification
I, Priscila Robledo, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.