AFTER years in economic neverland Argentina has begun waking up to reality. As we report in this week’s issue, having all but emptied its foreign reserves, the government of Cristina Fernández was forced to let the official exchange rate fall closer to the black-market “blue” rate. The peso tumbled by 20% against the dollar in the space of a few days. Will Argentina’s woes spill over into its bigger neighbour, Brazil?
Trade is likely to take the most direct knock. Argentina is Brazil’s third-biggest export market (after the United States and China), accounting for 8% of Brazilian exports. In 2013 Argentines imported $19.6 billion worth of Brazilian wares, mainly cars, equivalent to 0.9% of Brazil’s GDP.
If that does not sound a lot, Itaú, a Brazilian bank, reckons that each 10% decline in exports to Argentina could reduce Brazilian GDP growth by as much as 0.2 percentage points in 2014, with manufacturing bearing the brunt. This would matter less if Brazil’s economy...Continue reading
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