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 -------------- Summary -------------- ¶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. -------------- Export and Import Performance in February -------------- ¶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. -------------- Comment -------------- ¶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