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Informe Mensual Económico Financiero N° 340 – Junio de 2018

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EXECUTIVE SUMMARY Geopolitics threatens the expansion of the world economy. The advance of populism

in Italy, the political changes in Spain and the swings in the negotiations of US-North

Korea influence negatively. This has been reinforced by the uncertainty caused by

the dismantling of the Q.E. program, an experiment without previous history.

The framework of greater volatility and uncertainty causes an increase in emerging

risk and a persistent outflow of capital to the US. In Latin America, the impact is more

noticeable tan in Asia, and the Brazil devaluation and the expectation of a slowdown

in the pace of growth in Brazil, are both bad news for Argentina.

The data on economic activity in our country in the first months of 2018 were still

encouraging: the EMAE (Monthly Economic Indicator) grew 3.5% in internal terms in

the first quarter (although March fell compared to February) and industrial production

did 4.4% in the first four months. But analysts’ consensus estimate falls in activity in

the second and third quarters (compared to previous periods) and have corrected

their growth estimates for 2018 to 1.5%-1.8%.

If there is a resistance to the downside, the inflation rate begins to climb, as result of

a combination of factors: tariff correction, devaluation of the peso (30.8% since

December), adverse expectations. In April the National CPI increased 2.7%,

accumulates 9.8% in the first four months and increases 25.5% year-on-year. In May

in expected a raise similar than that of April. The inflation floor of 2018 (between

points) rose to 25%, well above the official target and 15% in excess of the guideline

used in the 2018 Budget.

The change in relative prices implied by the rate adjustments in public services means

that their share in the average spending of families has increased displacing capacity

for spending on other goods and services.

The fiscal result of the first quarter, excluding income from Treasury property, showed

a deficit of 224 billion pesos (164 in 2017), despite the improvement in current

resources and the decrease in spending on capital and economic subsidies. The

trade balance deficit in the same period (3.420 million dollars) is explained by a 21.6%

increase in imports, despite an 11.1% increase in exports.