Argentina's economy has begun to reap the benefits of the government's market liberalization and macroeconomic stabilization measures over the last two years. According to preliminary official data reported by the Intesa Sanpaolo Studies and Research Department, last year GDP increased by 2,9% in real terms, after decreasing by 2,2% in 2016. And now the most recent consensus estimates indicate for Argentina a GDP growth of 3,4% this year and 2,8% in 2019.
In Colombia, starting from 2015 the GDP dynamics slowed down, affected by the drop in the prices of hydrocarbons and other raw materials. The rise in the cost of money also weighed on domestic demand (in the two-year period 2015-16 the reference rate rose from 4,5% to 7,5%) aimed at countering the inflationary pressures due to the large depreciation of the exchange rate . According to preliminary data fromDANE statistical office, in 2017 GDP growth was 1,8%, a further slowdown compared to the 2% recorded twelve months earlier.
The situation is different in Mexico: the country is going through a phase of great political uncertainty determined by the negotiations for the revision of NAFTA and by the elections scheduled for next July. In 2017, GDP growth slowed from 2,9% to 2,1%. On the demand side, the slowdown in the economy reflects the contraction in investments (-1,3%), which were affected by the uncertainty regarding economic relations with the United States. Household consumption grew by 3,1% (from +3,7% in 2016) while exports accelerated (+4,4%).
The most recent consensus forecasts and the IMF's World Economic Outlook Update of January 2018 estimate Mexico's GDP growth to accelerate to 2,3% in 2018 and 3% in 2019: these forecasts underlie a revision of NAFTA that does not penalizes excessively Mexican export activities and a consequent recovery of investments.
The persistence of inflationary pressures and the pressure from the Argentine government for a monetary policy more in support of economic growth led last December to the Central Bank to raise the inflation target for 2018 to 15% (from the previous 8-12%) and that of 2019 to 10% (from 3,5-6,5%). In 2017, to counter inflationary pressures, the reference rate was raised from 24,75 to 28,75%; in the first weeks of this year, however, after the revision of the inflation target, the Central Bank made two cuts in the reference rate bringing it to 27,25%.
New easing actions are expected in the coming months, with the reference rate expected to be around 21% at the end of 2018. In Colombia, the inflation trend rate, from the peak of 9% reached in July 2016, fell to 3,7% in January 2018, returning to the target range of 3% +/- 1%. According to the Central Bank, the stabilization of the exchange rate and moderate economic growth will keep inflation within the target range in 2018 as well: the reference rate fell from 7,75% at the end of 2016 to 4,5% at the last cut decided in February 2018.
And the improvement in economic activity and the upside risks to inflation make new easing actions seem unlikely. In Mexico the annual rate of inflation rose from 3,4% to 6,8% last December, the core one rose to 4,9% from the previous 3,4%. Inflationary pressures are expected to gradually subside in 2018, with the trend rate expected by the end of 2018 at around 4%, the upper limit of the target range of the Central Bank (3% +/-1%): in two years the policy rate has risen from 3% at the end of 2015 to 7,5% in February 2018. According to analysts, with real rates now positive and inflation expected to slow down the bullish cycle is now coming to an end. The most recent consensus forecast sees the Central Bank remaining unchanged for the whole year, to then begin a relaxation phase in 2019 (rate at 6,75% at the end of next year, from 7,50% at the end of 2018).
In 2016, Argentina's primary public deficit as a ratio of 4,6% to GDP fell short of its 4,8% target; last year, the government set a target primary deficit of 4,2%. Public debt, in relation to GDP, has risen by 5 points in the last 15 years, reaching 51% in 2016, where about 70% of this debt is in currency. In 2017, the budget balance of the target state recorded a deficit as a ratio of GDP of 4,7%, substantially unchanged compared to the previous twelve months, while the overall one rose to 6,9%, from 6,5% in 2016.
For 2018, the Government has indicated a target primary deficit of 3,2% of GDP, while the overall financial requirement is forecast at 5%: the public debt ratio is expected to rise from 52,8% in 2017 to 55,8 .2017%. In 22, the worsening of the trade balance, combined with the higher payments for the remuneration of capital invested in the country, led to a substantial widening of the current deficit of the balance of payments, estimated last December at around 3,7 billion dollars (14,7% of GDP) from 2,7 billion (XNUMX% of GDP).
In the same period, foreign exchange reserves amounted to 50,1 billion (for a reserve cover ratio of 0,74) and external debt was approximately 160 billion (31% of GDP); external debt to GDP ratio rose from 28,3% to 36,2% of GDP. In Colombia, the weight of revenues from hydrocarbons has dropped from almost 20% of the total to around 2%: last year the deficit/GDP ratio rose from 3% to 3,2%. At the same time, the public debt ratio fell further, from 50,2% to 48,5%. Furthermore, the deficit on the current account of the balance of payments decreased from 12,4 billion to 8,4 billion (2,7% of GDP): this result mainly reflects the reduction of the trade deficit.
Last year, the decline in FDI (from 4,8% to 3,2% of GDP) and foreign portfolio investment (from 3,2% to 1,9% of GDP) resulted in a contraction of the surplus financial account. At the end of 2017, foreign exchange reserves amounted to 45,4 billion, against an estimated financial requirement of 2018 billion in 37,9, for a reserve cover ratio of 1,2. External debt at the end of 2017 amounted to 48,5% of GDP, of which almost 2/3 held by the public sector.
In Mexico, according to preliminary data, in the whole of 2017 the trade deficit decreased from 13,1 billion to 10,9 billion, while the current one stood at around 20 billion (1,7% of GDP). At the end of 2017, foreign currency reserves amounted to €164,8 billion, down from €168,7 billion, against an estimated external financial requirement for 2018 of €130 billion (reserve cover ratio 1,27). Last September, Mexico had a net international financial position of 531 billion (46,5% of GDP), where the external debt-to-GDP ratio, equal to 39,6%, was among the highest in Latin America .
In Argentina, progress on the road to reforms and the adjustment of macroeconomic imbalances led the rating agencies to carry out new upward revisions of their assessment of the sovereign debt in the country's currency: last October S&P raised its rating from B to B+ , Moody's (from B3 to B2) and Fitch (rating B with outlook from stable to positive) did the same in November.
All three major rating agencies consider Colombia's foreign currency sovereign debt a non-speculative investment, however last December S&P cut its rating from BBB to BBB-, while Fitch and Moody's have not changed their ratings in recent years rating (BBB and Baa2 respectively). Mexico's currency sovereign debt is a non-speculative investment (rated BBB+ by Fitch and S&P, A3 by Moody's), whereas in the middle of last year S&P and Fitch removed the Negative Outlook on the rating.
