Imports were up by 19% and exports by 0.9% in 2017. (Photo via Noticias Argentinas)

Argentina posted a a trade deficit of US $8.47 billion in 2017, a new record for the country and the largest nominal trade deficit ever. As a percentage of GDP (-1.4 percent) the trade deficit was the largest since 1998, when it hit -1.5 percent.

According to figures released by the INDEC statistics bureau, exports increased by 0.9 percent in value in 2017 compared to 2016 and imports surged by 19 percent. A trade deficit was posted in every month of 2017.

Argentina had a trade surplus of US $1.97 billion at the end of 2016. The chart below tracks total exports and imports by month and the surplus/deficit from 2015 to 2017.

Through 2017, exports totaled US $54.8 billion, a shade up on the US $57.88 billion in 2016. INDEC figures showed that while the prices of Argentine exports increased 1.4 percent in 2017 compared to the previous year, the total amount exported declined 0.4 percent. Primary products saw a decline of 5.1 percent in terms of totals exported, matched by a 3.5 percent decline in manufactured agricultural goods (MOA) (such as soybean oil and other processed agricultural  products). According to the ABECEB economic consulting firm, the decline in MOA goods can be explained both by the record year in 2016 as well as the shutting down of markets in the US (biodiesel) and India (soybean oil).

In contrast to the agricultural goods, exports of manufactured industrial goods (MOI) increased by 11.2 percent in value in 2017, boosted by a 9.1 percent increase in the totals exported and a 1.9 percent increase in the prices received for those goods. Although there was a decline in the overall amounts exported, the increase in international prices for energy meant that exports of energy products increased by 18.8 percent by value in 2017.

According to INDEC figures, in 2017 25 percent of Argentine exports were primary goods, 38 percent were manufactured industrial agricultural goods, 32 percent were manufactured industrial goods and the reminder (4 percent) were energy exports.

While imports in 2017 increased overall by 19 percent, the single-biggest increase was in the form of automobiles – which saw an increase of 40.9 percent, up from 2016’s US $4.46 billion to US $6.30 billion in 2017. Intermediate goods and capital goods represented the biggest import category by value, totaling US $17.84 billion and US $14.91 billion respectively. For Abeceb, the increases of 15.2 and 23 percent in imports of intermediate and capital goods “reflects the industrial recovery and investment as well as the solid growth of construction that characterized 2017.”

In 2017 capital goods amounted to 22.3 percent of all imports, intermediate goods clocked in at 26.7 percent, parts and accessories for capital goods 19.3 percent, consumer goods 13.4 percent, automobiles 9.4 percent, and fuels 8.5 percent.

Finding an explanation

According to Lucio Castro, Productive Transformation Secretary, the deficit was a result of “circumstantial changes” that affected Argentine exports at the same time as imports increased.

“Brazil had a bad year and imported less cars” from Argentina, according to Castro, who added that Brazil was also able to export its cars to Argentina. Lower prices for primary goods explained the export performance as well as demand from industry seeking to update their equipment also explained the numbers according to Castro, who was quoted by Télam.

For the Ecolatina economic consulting firm, the deficit could be explained by “economic recovery, the open borders trade policy and the overvaluation of the peso.” As such for Ecolatina the recovery “generated both an increase in investment and consumption that increased imports of both capital goods as well as consumer goods.” That recovery was paired with an exchange rate that “lowered the relative price of external goods in comparison to the domestically produced goods” and the poor performance of primary goods and MOA goods to pave the way for the deficit.

Abeceb noted that “a great deal of the trade deficit can be explained by the two primary partners, Brazil and China. The trade balance with these economies had deficits of US $7.70 respectively and US $7.74 billion respectively. Nonetheless, the trade deficit was also affected by trade with NAFTA and the European Union, among others.”

As such, the government might take heart from recent International Monetary Fund projections that see higher than expected GDP growth in Brazil, China and the United States.