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External Shocks Challenge Argentina Economy

External Shocks Challenge  Argentina EconomyExternal Shocks Challenge  Argentina Economy

 External shocks pose a challenge to Argentina’s economy in this election year, according to private Mar de Plata- and Buenos Aires-based consulting firm Management & Fit.

In October, voters will go to the polls to elect a successor to President Cristina Fernandez, whose term ends in 2015, Xinhua reported.

“The external context presents certain challenges over the next few months. Amid the recession and pre-electoral climate in our country, the international situation cannot go unnoticed,” the firm said in its latest economic outlook.

According to the International Monetary Fund, the global economy will grow 3.5 percent in 2015, a slight improvement spurred mainly by the developed nations which are expected to grow 2.4 percent, the biggest increase since 2010, the report notes.

Emerging economies, such as Argentina, however, are experiencing a slowdown for the fourth year in a row, with a projected growth of 4.3 percent on average, said the firm.

Given this scenario, “the country’s exports will be deflated by price and by quantity,” said Matias Carugati, chief economist at the Management & Fit.

In the agricultural sector, “the perceptible drop in international prices will reduce the value of exports, despite a record harvest,” Carugati said.

A case in point, he said, is the price of soy falling 35 percent in the past year, “a trend that will not turn around in 2015, according to the IMF.”

Official figures so far bear this out, “reflecting that exports of raw materials and byproducts did not grow in the first quarter, due to decreases in prices that countered increases in the volumes shipped out,” said Carugati.

  Economic Slowdown

Closer to home, the economic slowdown affecting Argentina’s South American neighbors, except Chile and Peru, will have a direct impact on its industrial exports, said the economist.

“These exports are mostly destined for other South American countries, unlike raw materials and byproducts,” which are distributed more widely, he said. “Without a doubt, the main concern is Brazil,” which consumes 21 percent of Argentina’s total exports and 47 percent of its industrial exports, said Carugati.

The No. 1 economy in Latin America is expected to contract 1 percent in 2015, “due to spending cuts, problems with competitiveness and the impact of investigations into corruption,” he said.

Argentina’s exports to Brazil have already dropped 24 percent so far this year, according to Management & Fit.

What also matters is the expected rise of the interest rate in the United States and the strengthening of the US dollar, which “has weakened currencies around the globe,” said Carugati, noting that Brazil’s real lost 24 percent of its value in the past six months while the euro slid 14 percent.

 

Financialtribune.com