Argentina: February Drop in Trade Volumes Signals Economic

UNCLAS BUENOS AIRES 000393

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ECON AR
SUBJECT: Argentina: February Drop in Trade Volumes Signals Economic
Downturn

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Summary
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1. (SBU) Argentine exports dropped a sharp 24% y-o-y in February
2009, while imports declined 37% y-o-y, reflecting both lower
volumes traded and also lower international prices. Decline in
exports reflect both the loss of domestic industrial competitiveness
and lower global demand, while the drop in imports attests to the
major deceleration of domestic demand, notwithstanding official GoA
reports of GDP growth in the first quarter to date. Given the high
elasticity of Argentine imports to GDP, and the correlation between
exports and domestic demand, these trade figures offer a strong
indication of an economic downturn in Argentina. End Summary.

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Export and Import Performance in February
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2. (U) The U.S. dollar value of Argentine exports declined a sharp
24% y-o-y in February 2009, while imports declined 37% y-o-y,
reflecting both lower volumes traded and lower international prices
for Argentina's primary commodity exports. Exported quantities
declined 12% y-o-y in February, while unit export prices dropped 14%
y-o-y. In contrast, the 37% decline in imports was driven almost
exclusively by a 34% y-o-y decline in quantities, with unit import
prices dropping just 4% y-o-y.


3. (U) Commodity exports (ex-fuels) dropped 43% in February y-o-y,
with volumes down 27% y-o-y and prices falling 22% y-o-y. Cereal
exports were down a staggering 61% y-o-y, due to drops in corn and
wheat sales that reflects both drought conditions in Argentina and
the ongoing agricultural sector conflict that has prompted some
farmers to withhold grains from the market. Exports of industrial
goods also declined 18% y-o-y, reflecting lower global demand in
most categories (most notably automobiles for which exports fell 45
% y-o-y) but also the loss of domestic industrial competitiveness
vis Argentina's largest export market, Brazil, whose currency
depreciated 23% against the US dollar over the past 6 months vs. a
15% depreciation of the Argentine Peso against the U.S. dollar over
the same period.


4. (SBU) On the import side, Argentina's purchases of capital goods
declined a very large 46 % y-o-y, mostly due a 44% drop in imported
volumes. Imports of consumer goods dropped 23% y-o-y, with auto
imports down 40% y-o-y. The decline in imports reflects a major
deceleration of domestic demand, notwithstanding the official GoA
statistics that showed 2.3 % GDP growth for January y-o-y.


5. (U) As a consequence, the Argentine monthly trade balance posted
a higher than expected US$ 1.28 billion surplus in February, up from
the US$ 1.0 billion surplus of February 2008. The y-o-y increase in
the trade surplus reflects a drop in imports much stronger than the
large decline in exports. The 12-month rolling surplus through
February was US$ 13.1 billion, a bit up from US$ 12.8 billion in
January.


6. (SBU) In a recent report, Goldman Sachs stated that Argentine
exports would be hurt by lower commodity prices, lower grains
harvest, and the weaker demand for non-commodity exports. However,
it projects that trade and current account balances are likely to
remain anchored by the significant deceleration of domestic activity
and expected peso weakening, which should contribute to significant
reductions in the growth rate of imports. Credit Suisse added that
both exports and imports would continue declining through most of
2009, with the trade surplus declining to $10.5 billion at the end
of 2009 from $13.2 billion at the end of 2008.

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Comment
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7. (SBU) While independent economists allege widespread GoA
manipulation of Argentine macro-economic statistics, they generally
agree that the government's trade statistics remain trustworthy. We
therefore believe that Argentine trade figures accurately reflect
the contraction of domestic and international demand as a
consequence of the international economic crisis, with linked drops
in international prices for most tradable goods and traded volumes.
Given the high elasticity of imports to GDP, and the correlation
between exports and domestic demand, these trade figures offer a
strong indication of economic decline in Argentina.

WAYNE