Market Report, "Argentina Business Forecast Report Q3 2013", Published

Boston, MA -- (SBWire) -- 08/30/2013 --We continue to expect that Argentine real GDP growth will bottom in 2013, forecasting 1.8% growth this year after 1.9% growth last year, as a currency devaluation, which we expect to occur in H213, sends inflation higher, and net exports drag on real GDP growth. We expect real GDP growth to accelerate to 2.9% next year on the back of a rebound in private consumption and less of a drag from net exports.

We expect a weakening goods trade picture to result in a very slight current account deficit in Argentina this year after just a 0.1% of GDP surplus in 2012. Meanwhile, we believe that high political risk and a weak growth outlook will keep net financial flows into the country weak, resulting in further depletion of foreign currency reserves until a devaluation in the second half of 2013 rebalances the external accounts.

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There is a dearth of foreign currency in the Argentina economy, evidenced by the black market rate, or 'blue' rate, which continues to trade at a significant discount to the official rate. Additionally, the rate of depletion in the central bank's foreign currency reserves indicates that the authorities are preventing a more rapid sell-off at great cost. We maintain that, before the end of 2013, the currency will be devalued.

We forecast weakening revenue growth will result in widening primary and nominal budget deficits in Argentina this year, as the political pressure of an election year presents strong incentives to keep spending elevated. We forecast narrowing deficits in 2014 as an expected currency devaluation will boost revenues.

A new poll shows that a majority of respondents do not want Argentina's ruling Frente Para la Victoria (FPV) to win the October mid-term election, in line with our view that the party will perform poorly at the polls, paving the way for a move toward more orthodox economic policies in 2014 and 2015. We believe the ongoing unpopularity of President Cristina Fernandez de Kirchner will weigh heavily on the party, as the public grows increasingly dissatisfied with high inflation and a recent judicial power grab by the president

Key Risks To Outlook

Risk To Peso Devaluation Forecast: It is difficult to predict the exact timing of what we admit is a political decision as much as an economic one, and higher-than-expected grains prices could bolster Argentina's foreign reserves position and help it delay addressing its largely overvalued official exchange rate.

Risk To Real GDP Forecast: As mentioned above, a stronger-thanexpected grains harvest would give the Argentine government a larger cushion of foreign currency reserves, with which it could delay any resolution of the imbalances in the Argentine economy, pushing back the sharp economic slowdown that we expect to occur next year.

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