Entering into the third month of the new administration, in this report, we highlight the main signals that we extract from January’s latest data.

  1. The government’s popularity does not seem to have taken a toll with “Solidarity” austerity measures. Among central political figures, Alberto is still the one with the best net image (+43%), followed by Larreta (24%), Kiciloff (16%), CFK (7%), and Vidal (1%). Macri’s net image is -23%. UTDT’s government confidence Index rose by 18% in January. (See report Here)
  2. Activity is still contracting, with strong negative printings in (< 2.0% QoQ Q4:2019) and early January data also showing negative signs (construction, tax collection, and anecdotal evidence). On the positive note, Manufacturing grew 1.2% YoY in December – first positive in two years – mostly driven by Food and Beverages. We still foresee a stabilization in Q2 and soft recovery in H2 after debt restructuring. We forecast -1.0% for 2020 (-0.9%, 0.3%, 1.1%, 0.8% sequentially).
  3. inflation decelerated in January. We estimate 3.2% MoM in January (revised down vs. our published 3.8%, and Dec. 3.7%), driven mostly by the hike of VAT on food staples (Incidence 1.0%/1.5%). However, we foresee inflation below 3.0% in February, with low regulated prices incidence and official FX appreciation.
  4. Trade Balance was positive for the 15th month in a row in December (USD 2.2bn). We foresee a positive trade balance of USD 17bn for 2020. Also, with FX controls in place and portfolio dollarization almost zero, we expect a private Cash Balance Of Payments (MULC) surplus of 3.4%. We believe this may turn into a positive BOP of about 1% for the year if the government is successful in postponing most debt services of 2020,
  5. Aggressive easing of the Monetary Policy and excessive fiscal dominance is the Aquiles’ heel of the macro.  Leliq rates felt 7.0pp in January and Badlar 5.4pp MoM to 34.0%, with no sign of disinflation. Although the Monetary base contracted 4.3% in January – partially offsetting +13.3% – ARS 47bn money expansion form FX purchases and ARS 85bn from transfers to the Treasury were above our expectations. 
  6. With a stable Oficial FX, – CB has bought USD 0.8bn to avoid nominal appreciation – the Blue Chip Swap reacted to monetary easing and climbed to a new high of 41% (85.3 vs. 60.5) up from 27.6% at the beginning of the month. Official Real exchange rate appreciated again (4.9% MoM), and is now near 1997-2019 average. BCS REER, no the other hand, is similar to the 2003-2007 average.
  7. January tax collection surprised on the downside and put downside risk on our 0.4% primary deficit forecast for the year. Activity related and social security revenues fell 10.2% and 9.2% Yoy in real terms respectively, Foreign Trade slowed to 13% YoY vs. 60% in December. 
  8. Debt negotiation began with missteps, and EMBI spreads are again above 2000. The province of Buenos Aires failing to deliver a credible threat has also undermined the sovereign credibility in the debt negotiation. However, in line with what we stated in our Special Report “The path of least resistance”, we believe this may push the result to a more “market-friendly” result, maximizing grace periods at the extent of haircut levels. To our surprise, the IMF may be willing to accept this kind of solution.
Too see full report and statistical apendix click here