BUENOS AIRES, Argentina (Reuters) -- The deepening emerging market
crisis caused Argentine growth to halve in 1998, clouding this year's outlook
as the country faces the added challenge of a devaluation by top trading
partner Brazil, the government said Tuesday.
Gross domestic product grew 4.2 percent in 1998, down sharply from 8.6
percent in 1997, as emerging market mayhem in the second half of the year,
following Russia's rouble devaluation, hit Argentina's economy hard and
pushed rates higher.
The government said the economy contracted 0.5 percent in the last quarter
of 1998 from the same quarter a year earlier, revealing the scars of emerging
market turmoil as positive growth rates earlier last year turned negative.
"In the fourth quarter of the year the economy began to feel the effects
international crisis," the Economy Ministry said in a statement.
Uncertainty over whether Brazil, Argentina's biggest trading partner, could
retain the trading bands of its real currency added to the slowdown in the
fourth quarter as "economic agents overreacted to the possible damages"
from Brazil, the ministry statement said.
The government also announced Tuesday that while Brazil eventually did
devalue in January, there was no immediate benefit to Brazilian exports
cheapened by the lower currency, which has been devalued by about 40
"Brazil has problems in exporting because of its financing problems," said
Rogelio Frigerio, secretary for Economic Programming.
Imports from Brazil in January slid to $371 million, down from $521 million
in January 1997. In February, imports from Brazil were $340 million,
compared with $538 million in the same month a year earlier.
Argentine exports to Brazil in January fell to $384 million from $481 million
a year earlier, the ministry said.
Gustavo Canonero of Deutsche Bank Global Markets said it is not clear
what the net effect on Argentina's trade situation will be from Brazil's
But, whatever happens with Argentina's trade balance with Brazil, analysts
said the decline in both exports and imports confirmed an overall picture of
"Imports are determined by the level of activity; if the economy contracts,
do imports," said Nicolas Caruso, an economist at Banco Quilmes.
Argentine interest rates have eased since spiking after Brazil's devaluation
January. But commodity prices remain low and industrial output slumped in
January and February.
That has all but ensured that Argentina's economy will officially be in
recession by the end of this quarter. Two consecutive quarters of contraction
is generally defined as a recession by economists.
Deutsche Bank's Canonero, who in January predicted no growth for this
year, now foresees a contraction of between 1 percent and 2 percent. Other
economists see a recession of up to 3 percent for 1999.
The government, which recently admitted the economy would not grow the
officially forecast 3 percent, remains confident it will at least stay in positive
"We have the necessary elements to think growth will be positive in 1999,"
Copyright 1999 Reuters.