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Informe Mensual Económico Financiero N° 329 – Julio de 2017

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EXECUTIVE SUMMARY

Capital flows to emerging economies remain, despite adverse news from China´s

monetary tightening and Brazil´s political crisis; for the moment, both facts seem to be

“encapsulated”.

Developed countries (the United States, the European Union and Japan) have a

favorable stage of the economic cycle, underpinned by an expansionary monetary

policy without significant inflationary pressures. Chinas 6,9% growth in the first quarter

contributes positively.

Developing countries are receiving in 2017 the largest capital inflows in the last five

years. But, in Latin America in particular, the terms of trade are 20% lower than in

2010, which mean that maintaining the external balance requires a higher volume of

exports with a lower unit value. Exaggerated dependence on “financial” versus trade

based currencies constitutes vulnerability.

This is relevant for our country, whose deficit in the current account of the Balance of

Payments in 2016 was 15.0 billion dollars and in 2017 and 2018 would reach 21.5–

22.0 and 26.0–27.0, about 4.0% of GDP. A high figure considering that Argentina´s

external debt accounts for 35% of GDP (against average 23.9% for Latin America and

the Caribbean) and 333% for exports of goods against average 200% for Chile,

Colombia and Peru.

Argentina is experiencing a context of twin deficits covered by the placement of public

debt that finances the fiscal deficit, allows the rollover of the principal and covers the

needs of the current account deficit. The Public Debt/GDP ratio reaches 52%, two

thirds in foreign currency. The gradual reduction in the fiscal deficit predicts an

increase in these ratios in the immediate future. This is one of the factors by which

Argentina continues in the list of border markets.

The favorable figure is the gradual recovery of GDP. In the first quarter 1.1%

compared to the first quarter of 2016 and 0.3% year-on-year. The tables in the Gross

Domestic Product section show a clear predominance of positive records in the first

quarter compared to the previous ones. May Industrial and construction sector

indicators reinforce this forecast.

El IAEF agradece la colaboración de la Sra. Marta Álvarez – Executive English en la traducción de

esta Síntesis Ejecutiva.