Saturday, July 20, 2013

Cooking the numbers in Buenos Aires

Argentina's official economic growth surprised analysts with a 7.8% year over year jump in May.
MercoPress: - Argentina's economic activity jumped 7.8% in May from a year earlier, according to the country’s questioned stats office, Indec. President Cristina Fernandez had anticipated the news earlier in the week in a televised speech. ...The monthly EMAE economic activity index is a close proxy for GDP, which is reported quarterly.
Cristina Fernandez should be congratulated for this incredible achievement in the face of numerous adversities faced by the nation. But can the growth numbers be trusted?
MercoPress: - Argentina is widely accused of manipulating inflation data and, to a lesser extent, growth data. It faces potential sanctions by the IMF, which has issued a “declaration of censure” against Argentina over the quality of its statistics.
Even though the inflation number is heavily "understated", the growth numbers reported by the offficials should be more reliable? But this 7.8% number is meant to approximate the "real" instead of the "nominal" measure of the GDP growth. Which means that inflation numbers are key to this determination. The official inflation rate reported by the same government agency is 10.5%, while the actual number is more than double that amount. Computed using a more accurate inflation measure, the real GDP is likely to be negative.
GS: - The official Indec figures (0.8% mom, 10.5% yoy in June) are reporting less than half the inflation in the economy as measured by non-official entities.

Inflation is likely to remain entrenched above 20% during 2013-2014, given inertial pressures, the continuation of very accommodative monetary conditions, a deteriorating fiscal stance, and accelerating ARS [Argentina peso] depreciation. The monetary stance remains very lax (negative real interest rates), and the central bank continued to accommodate inflation at a very high level. In all, we expect the authorities to continue to subordinate low and stable inflation to fiscal and growth imperatives (severe fiscal dominance). This strategy is likely to lead to further pressure on the ARS to depreciate.
And pressure on the ARS continues. Earlier this year when Argentina was expected to default on its dollar debt (see post), the dollar hoarding in the black market forced greenbacks to spike to over 10 pesos. Since then the peso stabilized at around 8, but recently the black market activity has picked up again.

Source: QUARTZ (Note: the official rate is 5.46 pesos to the dollar)

With inflation numbers understated (and unlikely to improve), the real GDP growth is made to look far better than it really is. And given that the economy will be a major determinant of the October 2013 mid-term elections outcome, the Cristina Fernandez government continues to cook the country's key economic indicators.
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