Informe Mensual Económico Financiero N° 342 – Agosto de 2018
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
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.