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Informe Mensual Económico Financiero N° 342 – Agosto de 2018

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EXECUTIVE SUMMARY

The fluctuation of the tariff war cause an increase in uncertainty about the progress

of the world economy and introduce volatility for the emerging world. The reversal of

the monetary facilitation program (QE) coupled with the expansive fiscal policy that

will increase the US fiscal deficit, difficult to explain in moment of record US growth.

(4.1% in the second quarter), contributes to generate concern.

The good news is that during July the prices of agricultural commodities stabilized

first and then recovered and a moderate inflow of capital into emerging economies

was restored, which resulted in a drop in the risk premium (the EMBI fell from 369 to

323 basis points).

The Argentine economy entered the second half of 2018 in a period of decline in

activity, with year-on-year drops of -0.6 and -5.8% in the Monthly Estimator of

Economic Activity) in April and May, with decreases of -2.8% and -1.4% compared to

the previous month in each case, and of -5.4% in industrial production in June,

(compared to May -1.6%). Consistently, imports fell -7.5% year-on-year in June and

the trade balance deficit narrowed, despite the -1.4% decrease in exports, although

exports of manufactures of industrial origin increased -10.4%. Labor market

indicators showed deterioration.

Financial markets stabilized in July. The exchange rate entered a plateau of 28 pesos

per dollar (after having touched 29 pesos), which implies a devaluation of the order

of 50% since the end of December 2017 and of 58% year-on-year; at the end of the

month, the nominal exchange rate slightly declined. This was due to a restrictive

monetary policy of the Central Bank to reduce the LEBAC (Central Bank notes) stock

with a range of instruments: raise of reserves, exchange of LEBAC by LETES

(Treasury notes) and closure of other sources of expansion. The fall of the LEBAC

stock in July, of the order of 100 thousand million pesos, financed the increase of the

Monetary Base, in a framework of high interest rates. Reflection of the improvement

of the financial climate, the risk Premium of Argentina fell from 600 to 550 basis points

in July.

Despite the monetary containment and the contractive climate, the CPI rose 3.7% in

June and accumulates 16% in the first six months. The PPI increased 6.5% and

accumulates 30.3% in the semester. The gap suggests that the variation of the CPI

for the third quarter will be high (the increase in transportation and energy will

reinforce that trend), making it difficult to reach the goal of 27% and even the 32%

agreed with the IMF, which would require explanations to the IMF Board. It is one of

the goals of the agreement that appears to be more demanding.