Economic activity in Argentina
The economic situation in Argentina was in disarray with high inflation, fiscal deficit, and a host of other issues. Then a new president was elected in December 2015. In the last five years, economic activity has stagnated with a growth rate below the population growth. Argentina (FRN) is an important participant in the frontier markets. Let’s look now at the IMF’s (International Monetary Fund) projections for Argentina’s GDP growth rate.
Argentina’s GDP growth in 2016
Argentina’s GDP fell 2.1% year-over-year in 4Q16 compared to a 3.7% fall in 4Q15. Less growth can mainly be attributed to the following:
- a fall in government spending of about 2.0% in 4Q16
- a fall in investments and private spending in 4Q16 but less than the fall in 3Q16
- recovery in exports and imports of 7.7% and 2.1%, respectively, in 4Q16
The economy expanded by 0.50% on a quarterly basis compared to a 0.10% rise in 3Q16. On a yearly basis, GDP contracted 2.3% in 2016, following a 2.6% expansion in 2015.
The efforts of the new government over the last 16 months have focused on restoring credibility and establishing sound economic policies for sustainable growth. The government’s efforts seem to have paid off with a growth expectation of around 2.2% for 2017, according to the latest IMF report. Growth is expected to be driven by higher exports and investments in 2017.
Recently, Standard & Poor’s (SPGI) upgraded Argentina’s long-term credit rating from B- to B. That comes as a relief to President Mauricio Macri who took over a shattered economy in 2015. Improved credibility for the government is evident through improvement in its external liquidity and access to commercial funding. The government issued external bonds of about $22.0 billion in 2016 and $7.4 billion so far in 2017.
The Global X MSCI Argentina ETF (ARGT), tracks the largest and most liquid securities with exposure to Argentina. The fund has allocations of more than 65.0% in sectors such as energy (XLE), information technology (XLK), and financials. It rose about 28.0% in 2016. Some of its top holdings include Tenaris (TS), MercadoLibre (MELI), and YPF (YPF).
Next, let’s look at the equities performance in Argentina.