The International Monetary Fund’s (IMF) World Economy Outlook update for 2018 has projected a strengthening “global upswing” that also includes positive growth numbers for the countries that most heavily purchase Argentine exports.
Released today, the 2018 outlook noted that “120 economies, accounting for three quarters of world GDP, have seen a pickup in growth in year-on-year terms in 2017, the broadest synchronized global growth upsurge since 2010. Among advanced economies, growth in the third quarter of 2017 was higher than projected in the fall, notably in Germany, Japan, Korea, and the United States. Key emerging market and developing economies, including Brazil, China, and South Africa, also posted third-quarter growth stronger than the fall forecasts.”
In terms of the Western Hemisphere, the IMF notes that “in Latin America, the recovery is expected to strengthen, with growth of 1.9 percent in 2018 (as projected in the fall) and 2.6 percent in 2019 (a 0.2 percentage point upward revision). This change primarily reflects an improved outlook for Mexico, benefiting from stronger U.S. demand, a firmer recovery in Brazil, and favorable effects of stronger commodity prices and easier financing conditions on some commodity-exporting countries.”
The growth figures for Brazil bode well for Argentine exports going forward. According to the INDEc statistics bureau’s most recent international trade figures, published in November 2017, approximately 20 percent of Argentina’s exports went in the first 11 months of 2017 were to the Mercosur – making it the single-biggest destination. The same INDEC report notes that of Mercosur exports, 78.1 percent when to Brazil, 10.7 percent to Paraguay, 9.9 percent Uruguay and 1.3 percent to Venezuela. More than a third of exports to the Mercosur countries were industrial products like tractors or cars.
Given the relative importance that Brazil has on Argentine exports, greater-than-expected growth could help reverse a growing overall trade deficit. In November 2017 Argentina had a trade deficit of US $7.6 billion for the year-to-date. Over the same period in 2016 Argentina had a trade surplus of US $1.93 billion.
Brazil, United States, China are the top three destinations for exports by country according to the INDEC. In the IMF’s view, “growth is expected to moderate gradually in China (though with a slight upward revision to the forecast for 2018 and 2019 relative to the fall forecasts, reflecting stronger external demand).”
The graph below represents export destinations and import origins for Argentina for the first 11 months of 2017, signaling the importance of increasing demand in the most important trading partners.
Despite the enthusiasm, all is not necessarily rosy for the IMF in the medium-term. In particular, the World Economic Outlook warns about “increase in trade barriers and regulatory realignments, in the context of these negotiations or elsewhere, would weigh on global investment and reduce production efficiency, exerting a drag on potential growth in advanced, emerging market, and developing economies.”
In addition, an IMF blog post on the report released today notes “China will both cut back the fiscal stimulus of the last couple of years and, in line with the stated intentions of its authorities, rein in credit growth to strengthen its overextended financial system. Consistent with these plans, the country’s ongoing and necessary rebalancing process implies lower future growth. As for the United States, whatever output impact its tax cut will have on an economy so close to full employment will be paid back partially later in the form of lower growth, as temporary spending incentives (notably for investment) expire, and as increasing federal debt takes a toll over time.”
Risks of higher inflation in the US, and the possibility that it may trigger a faster-than-expected interest rate increase is also a potential risk for Buenos Aires at a time when it is projecting to continue to take on dollar-denominated debt.