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Informe Mensual Económico Financiero N° 337 – Marzo de 2018

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EXECUTIVE SUMMARY

The fall in share prices and the increase in bond yields in the United States at the

beginning of February, then reversed, was a warning sign for developing economies,

particularly the most indebted ones or those with higher fiscal and external deficits.

The United States faces growing twin deficits, in a context of high indebtedness and

rising interest rates. In this context, in which fiscal deterioration is not compatible with

the prolonged period of expansion of the US economy, President Trump’s

announcement of further raising the fiscal deficit deepens the weakening of the dollar.

For the Latin American economies the episode represents an increase in the risk

premium, subsequently reversed; the exception was Argentina, where the risk

premium at the end of February still exceeded the December level.

In January, the economy maintained a year-on-year growth rate of 3% at aggregate

level, supported by construction, while there are divergent estimates regarding the

performance of the industry. Extremely worrisome is the drought effect, both as a

discouraging factor in supply as well as the impact on spending in rural sectors: the

direct impact would be equivalent to 0.5% less of GDP growth in 2018.

January’s trade deficit, close to 1.0 billion dollars, is a signal of alarm, in a more

complex external financial context. Although exports grew 10.7% year-on-year,

imports jumped 32.1%. Again, the drought would imply a loss of 3.0–4.0 billion

dollars.

On the fiscal level, the total deficit for January increased fivefold to the same month

of 2017, although a small primary surplus was maintained. The monetary policy is still

conditioned by the fiscal deficit: in February the Central Bank bought dollars from the

Treasury for the equivalent of 99.0 billion pesos, or 10% of the Monetary Base.

The dilemma of economic policy is raised in 2018 between the financing of twin

deficits, in a more complex external context due to the volatility of international

markets, and the objective of reducing the inflation rate.