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Informe Mensual Económico Financiero N° 336 – Febrero de 2018

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EXECUTIVE SUMMARY

The favourable momentum

of the world economy was ratified by the IMF, which

projects a growth of 3.9% by 2018 compared to 2017 (0.4% higher than last

October’s estimate). In a consistent manner, it projects the growth of international

trade to 4.6% (in physical volume), in a context of a moderate increase of the interest

rate.

The weakness of the dollar goes in the opposite direction to President Trump’s

announcements; the downward trend is of multi-causal origin and dates back a

couple of years, beyond a recovery at the end of 2016. Anyway, the current real

exchange rate appears among the eight most appreciated of the last 25 years. By

the end of 2018 parity is expected against the euro similar to the current one and a

recovery against the yen, the yuan and the real. The Stock Exchange down could

be associate whit the dollar weakness and the bit coin down.

In Argentina, economic activity grows slowly in October and November (0.3% and

0.4% from the previous month). Although the growth forecast of 2.8% is confirmed

for 2017, the statistical carryover for 2018 is reduced. Investment has been the

dynamic factor, with low growth of consumption and stagnant exports..

The slow growth would explain the decision to reduce the interest rate of the Lebac

(notes of the Central Bank) and raise inflation targets, accepting the risk of a

readjustment of the exchange rate, as it finally happened; such rearrangement

improves the real exchange rate, among other effects.

The test that showed the inflation rate in 2017, to drill the 25% floor, worsened in

the fourth quarter (reaching 26.8% at an annual rate), closing the year with 24.8%

year-on-year in December. Inflation is sustained by four factors: active inflation, the

corrections in regulated prices, the adjustment of the exchange rate (18.4% in 2017)

and the increase of nominal wages (27.5% in 2017). All this is conditioned by a

monetary expansion of 45% before sterilization via Lebac.

In the first quarter of 2018 several factors contribute to keep the inflation rate high:

increases in public services, transportation rates, municipal taxes, medical

prepayments and schools, expenses, all of them with a gravitational effect on the

CPI; it is possible that the increase of the quarter exceeds the same period of 2017

and be about 6.5% (27% at an annual rate).

The aforementioned items, whose prices show greater dynamism, have a low price

elasticity, so that they act limiting the portion of the income that consumers can allot

to other goods. In addition, even being low, the indebtedness of the average

households of the population has grown hand in hand with a 50% increase in loans,

which also reduces disposable income. Consequently, the sectors that produce