Trade account records large surplus in March
The principal driver of the trade surplus continued to be strong import compression, with domestic demand yet to pick following last year's economic crisis. Indeed, the import bill fell by close to one-third in year-on-year terms, largely as a result of weaker import volumes (as prices declined only marginally in March). Imports of capital goods and accessories for capital goods were hit the hardest; both fell by close to two-fifths as extremely tight monetary and fiscal policy continued to throttle investment spending. Consumer goods imports also declined sharply, largely reflecting the deterioration in households' purchasing power. Imports of durable and semi-durable goods were effected the most, as these are most responsive to income effects; by contrast, imports of necessities such as medicine and basic food items dropped only moderately. Although we assume that economic conditions will improve in sequential terms, this will be a very gradual process, and imports are likely to remain in the red for most of 2019.
Export earnings in March also fell modestly, by 5% year on year. However, the result is due almost entirely to price effects, as export volumes rose across almost all major categories. Energy exports performed the best, reflecting higher volumes of and prices of fuel exports. Theoutlook for fuel exports is especially encouraging given recent investment in the sector. InFebruary YPF, the state-owned oil company, made its first export of oil obtained from the large Vaca Muerta shale deposits, and shipments are slated to increase in the months to come. Exports of primary products and of agricultural manufactures also increased in volume terms; however, subdued prices for agricultural commodities meant that earnings from these exports actually fell in year-on-year terms. More concerning is the decline in exports of industrial manufactures. In particular,automotive exports(which have knock-on effects on exports of aluminum, rubber, plastic and related products) have weakened as a result of recently reinstated export taxes as well as aweaker outlook for Brazilian demand(the Brazilian market accounts for 65% of auto exports). These risks, however, have largely been incorporated into our forecasts.Impact on the forecastThe data are broadly supportive of our forecast for a trade surplus of 2% of GDP in 2019.