Downgrading our forecasts for Argentina

The rout in Argentine markets is likely to push the economy back into recession. We now expect GDP to contract by 3% over this year as a whole (our previous forecast was -2.0%) and inflation to breach 60% y/y (from 55% y/y now). We also anticipate a sovereign debt default but, so long as this occurs as part of the IMF deal, the economic fallout should be relatively contained. We’ve pencilled in a fall in GDP next year of 1% (our previous forecast was +2.0%).