January 10th, 2025

PANORAMA
Weekly Economic Report

SUMMARY ARGENTINA

Global: Global markets had a week of ups and downs. In the U.S., the Fed • Activity: Industry and Construction rebounded in November. In
released the minutes from its latest meeting on Wednesday, revealing December, first data anticipate that the recovery continues
growing concern among officials about the limited progress in the
disinflation process over the past few months. Added to this is the risk
that Trump’s agenda (particularly trade-related policies) could cause a • Construction: Drivers of the rebound in 2025
temporary increase in inflation if implemented. In this context, the yield
on 10-year Treasury bonds climbed to 4.7% (the highest since April). In • Financial Outlook: BCRA Purchases, Pesos, Bonds, and Outlook
Brazil, the Real recovered and returned to R$ 6 per dollar.
Activity (FMyA): Monthly Variations
Macro: The first week of 2025 kicked off in “business as usual” mode. The Supply sept-24 oct-24 nov-24 dic-24
Central Bank (BCRA) continues to buy reserves. The Treasury paid $4.3 Activity (EMAE) -0,0% 0,6%
Indus try (INDEC) 2,5% -0,8% 0,4%
billion in bonds using part of the $6 billion it held at the BCRA. The Cons truction (INDEC) 2,2% -4,3% 2,2%
remaining $2.5 billion after payments to private investors ($3.7 billion) Ta x Revenue l i nked to Activi ty -3,6% 4,6% 1,7% 1,0%
plus the $1 billion from the REPO are earmarked for the next payment in Cement Sa l es 1,3% 2,4% -0,4% 4,5%
July, amounting to another $4.3 billion. Economic activity continued Cons truya Index -5% -3% -3% -1%
rebounding in December, and formal wages regained almost all the losses Ca r Production -1% 7% -3% 0,1%
Bra zi l Exports 14% 3% -9% 13%
from the early months of the year. Bra zi l Imports 30% 8% -4% 16%
Demand sept-24 oct-24 nov-24 dic-24
Next week, December’s inflation data will be released. The REM (Market Retail Sales (CAME) 4,1% 6,7% -1,0% 7,7%
Expectations Survey) and we both estimate 2.7%, while the bond market New Ca rs Sa l es 11% -1% -11% 5%
estimates 2.1%. On Tuesday, Milei’s recent statement will be settled: "If New Motorcycl es Sa l es -14% 8% 8% 14%
inflation is 2.5%, we’ll lower the crawling peg to 1%." Our base scenario Rea l forma l wa ges 0,6% 3,8% 0,4%
had projected that in January, if inflation dropped (we forecast 2.3%), the Stock Cons umer Credi ts 6% 11% 3% 6%
crawling peg would be reduced to 1% in February, and interest rates UTDT Cons umer Confi dence -6% 9% 6% 2%
would drop to 27% from the current 32% nominal annual rate (TNA). Of
course, we don’t rule out this happening as soon as next Tuesday or Real Wage in $ of today and Electoral Result of the Ruling Party
(FMyA)
Wednesday. Even if inflation comes in at 2.6%-2.7%, we’ll see how the
1.700.000 60
core inflation figure justifies the move. NK CFK1 CFK2 MM AF/CFK JM

1.620.788
1.600.000 55

Regarding the currency controls (CEPO), this week Milei reiterated that if 1.501.898
54
1.500.000 50
he secures $15 billion, he will lift the CEPO. For now, we expect details of
45
the new IMF agreement to be disclosed in the coming weeks (February). 1.400.000 45
42
The IMF owes Argentina $1 billion under the current agreement, and
1.300.000 39
Argentina must pay $2.5 billion in interest in 2025. These $3.5 billion will 37
40 40

37
form part of the new agreement. 1.200.000 34
1.178.925
35
33

29
Markets: Lecaps are pricing in a rate cut in the coming weeks as they yield 1.100.000 30

2.7%. Liquidity in pesos remains stable (active repo rates have decreased), 1.000.000 25
and next week there is a Treasury auction. The bond market is pricing in
17% inflation for 2025, while we estimate 22%. For those who believe in 900.000 20
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
22%, CER bonds are more attractive than Lecaps. In the dollar market, Real Wage in $ Election of the Ruling Party (right)
country risk continues to fall, now at 560, and is expected to decline
further if it aims for rates similar to other countries, such as Egypt (SEE
PAGE 3). In the short term, bonds will receive a boost from this week’s
payments.

Risks Monitor. Regional Brazil crisis has contain in recent days. In Argen-
tina, Social Mood continue supporting Milei´s Administration (53% sup-
port). But agricultural drought begin to worry and sector need more rains
in next weeks; Today main worries are not enough rains and tension be-
tween Milei and Macri not increase.

Fernando Marull y Asociados (FMyA) E-mail: fernando@fmya.com.ar 1

Tel.: (011) 156-5887-992
 January 10th, 2025

LOCAL OUTLOOK
Activity: Industry and Construction rebounded in November. In De- Construction: Drivers of the rebound in 2025
cember, first data anticipate that the recovery continues

November. This week, Indec reported activity data for November, which In 2024, Construction was a sector that has been recovering slower than
anticipates that the recovery of the EMAE will continue. Industry (IPI) average, affected by the recession of the first quarter, the stoppage of
rebounded 0.4% monthly and has been at a stable level since Septem- public works and the increase in costs in dollars. According to AFCP, in
ber. At an annual level (against the last month of Fernández) it fell 1.7%, 2024 there were 9.5 million tons of cement produced, 24% less than in
with a difference between sectors: Construction fell 20%, Textile 17%, 2023 (12mTn). But we assume that in 2025 the sector will recover at
Rubber/Plastic 16% and Metal 13%. Meanwhile, some sectors are better least 15% (against 5% of GDP), due to:
than November 2023, such as Oil (+1%), Electronics (+3%), Machinery 1. Wages: We expect the improvement in real wages to continue,
(+7%) and Food & Beverages (+8%). compared to more stable construction costs.
Nov-24: Manufacturing Activity
(annual var.; FMyA based on INDEC)

Food & Drinks 8%

2. Private Credit: UVA Credits are beginning to “take off”. In Decem-
Machinery 7% ber, there were operations for USD260m in UVA Mortgage, and in
Electronics 3%
Oil 1% the boom of 2017/18 it reached USD690m per month.
Automotive -1%
IPI -1,7% Monthly UVA Mortgage Loan Operations
Chemistry -2% (In official USDm; FMyA based on BCRA)
Garments and Leather -2% 800
Motorcycles -3%
690
Furniture and mattresses -3% 700
Steel -7%
600
Wood and Paper -8%
Tobacco -11%
500
Metal -13%
Rubber and Plastic -16% 400
Textile -17%
Construction -20% 300
261
-30% -20% -10% 0% 10% 200

100
Indec also reported Construction activity (ISAC) in November, which re-
0
ported a rebound of 2.2% monthly, although it fell 24% annually. To
ene-16

ene-17
jul-17
ene-18

ene-19

ene-20

ene-21

ene-22

ene-23

ene-24
jul-16

jul-18

jul-19

jul-20

jul-21

jul-22

jul-23

jul-24
highlight, Building Permits in 176 municipalities as of October were 1.25
million M2, already at the same level as in 2021-23, and anticipate a
“normalization” of the sector in the coming months. 3. Cost in dollars: Construction costs in dollars reached similar to
those of 2017/18. We expect a stabilization of these costs in dollars,
Manufacturing and Construction INDEC
(s.a.; Base Jan-18=100. FMyA) while sales prices rebound due to greater demand.
105 Real Estate: Sale Price vs. Construction Cost
100 adjusted by US Inflation(US$/m2; FMyA)
4.200
95
3.900 Sale Price: BA City 2 rooms,
used and new 3.746
90
3.600
85 Construction Cost in Blue
3.300 Dollar (CAC)
80
3.000
75
2.700
70 Manufacturing 2.535
2.400
65
60 Construction 2.100

55 1.800
Apr-21
Apr-18

Oct-18

Apr-19

Oct-19

Apr-20

Oct-20

Oct-21

Apr-22

Oct-22

Apr-23

Oct-23

Apr-24

Oct-24
Jul-24
Jan-18

Jul-18

Jul-19

Jul-20

Jul-21

Jul-22

Jul-23
Jan-19

Jan-20

Jan-21

Jan-22

Jan-23

Jan-24

1.500
1.294
1.200
1.034
900

600
421 530
300
December, end of the year. A lot of high-frequency data was released 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

this week confirming that December was another broadly positive

month. Although, the monthly increase in Car production was slight, and 4. New Projects (RIGI): The Mining and Vaca Muerta sector already
Construction data was mixed (positive cement shipments but 5th month has announcements for USD15 billion in its portfolio, to be dis-
Construya index down). Thus, we estimate that on average in 2024, GDP bursed 40% in the next 2 years.
would have fallen 2.8%. By 2025, we expect activity to rebound 5%.

5. Tax Amnesty (blanqueo): USD20,000m were entered, and taxes

Monthly data vs. annual. Starting in December, the annual data begins
do not apply for real estate projects in Construction.
to show large increases, in contrast to the first part of the year. To have
a better idea of the pace of activity in these contexts (strong recession
followed by a “v-rebound”), it is advisable to follow the seasonally ad- 6. Public Works: Public works, still adjusted, will be reactivated be-
justed monthly indicators. cause it is an election year (mostly in Provinces).

Fernando Marull y Asociados (FMyA) E-mail: fernando@fmya.com.ar 2

Tel.: (011) 156-5887-992
 January 10th, 2025

FINANCIAL OUTLOOK
BCRA Purchases, Pesos, Bonds, and Outlook Let’s remember that Milei has stated on several occasions that if
December inflation comes in at 2.5% or lower, the crawling peg rate will
With just one trading day left, the first full week of 2025 started similarly
be reduced to 1%. However, judging by Rofex prices, the market doesn’t
to the final months of last year: the BCRA continues to buy reserves,
yet seem to be pricing in this scenario.
country risk keeps dropping, the Merval index in dollar terms remains
at record highs, and demand for Lecaps and CER bonds stays strong.
Below is a summary of the week in finance. Bonds
Sovereign bonds remain in demand. Country risk fell this week to 560
BCRA Purchases basis points and is expected to continue declining as the yields on local
debt align with those of economies one credit rating tier higher (such as
The BCRA bought reserves on all four trading days this week, at a very
Egypt or El Salvador).
high rate of just over USD 125 million per day. So far in January, it has
accumulated a positive balance of USD 709 million. The Central Bank’s Upside Potential. In a scenario where yields converge with those of
purchases continue to surprise; at this point in the year, and with the higher-rated countries, country risk could fall to around 400–350 basis
removal of the Impuesto País (a tax on foreign currency transactions), a points, and the entire sovereign yield curve would drop to 8% or less. In
slowdown was expected. this scenario, the longest-dated bonds would have the most upside
potential: with a yield of 8%, the AL35 bond could rise by about 16%.
As we’ve noted previously, during the latter part of 2024, there were
four main reasons for the BCRA’s reserve purchases: high agricultural
exports for this time of year, relatively low import levels (despite the Ticker 0.16 0.14 0.12 0.1 0.08
removal of the Impuesto País), an increase in dollar loans following tax AL29D -10% -7% -4% 0% 4%
amnesty measures, and the sale of dollars by companies issuing debt AL30D -11% -7% -3% 1% 6%
securities. With agricultural exports now moderating (less than USD 100 AL35D -26% -18% -8% 3% 16%
million per day) and imports picking up, the current purchases in early AE38D -23% -15% -7% 3% 14%
2025 must be due to new dollar loans or companies selling dollars from AL41D -29% -21% -11% 1% 15%
debt issuances.
For investors buying sovereign bonds now, note that in July, the second
Repo and Deposits. July Payments. amortization installment (10% of principal) for bonds maturing in 2029
(AL29 and GD29) and the third installment (8%) for bonds maturing in
Last week, the BCRA announced the completion of a repo transaction 2030 (AL30 and GD30) will be paid. All bonds will also pay coupons.
for USD 1 billion at an interest rate of 8.8%. This week, it was clarified
that the contract is backed by the issuance of USD 1.736 billion in
Fundamentals. Why Should Local Debt Yields Align with Those of Egypt
Bopreal 2027 bonds (valued at market rates as of Friday, January 3).
or El Salvador?
Before Thursday, the Treasury had USD 6 billion in deposits. This week,
In the short term, sovereign bonds will benefit from the reinvestment
it paid USD 3.5 billion to private investors, leaving a remaining balance
of this week’s payments. Looking further ahead, country risk should
of USD 2.5 billion. With the USD 1 billion from the repo, the sovereign
continue to decline due to improvements in Argentina’s
debt maturity due in July (another USD 3.5 billion to private investors)
macroeconomic fundamentals, which are the key factors evaluated by
should be fully covered.
credit rating agencies. These improvements are expected to persist
throughout 2025.
Peso assets
Specifically: (1) Argentina is projected to return to a zero fiscal deficit
Demand for Lecaps and CER bonds remains strong. Fixed-rate notes this year, while countries like Egypt and El Salvador continue to run large
currently yield 2.5% for January maturity, 2.2% for June, and 2.1% for fiscal deficits. (2) The current account deficit, projected at 1% of GDP for
December. Meanwhile, CER bonds yield between 4.5% and 8.5% above 2025, appears sustainable and is also smaller than those of the
inflation, depending on the term. The bond market is currently pricing comparison countries.
in 2.1% inflation for December and 1.3% for January and beyond.

Perhaps the greatest vulnerability of the Argentine economy lies in its

low level of reserves. However, this could be reversed if progress is
made on a new agreement with the IMF.

Fernando Marull y Asociados (FMyA) E-mail: fernando@fmya.com.ar 3

Tel.: (011) 156-5887-992