Analysts are warning that things could initially grow worse as the new president implements tough measures, such as cuts to the budget and devaluation of the peso, that could further weigh on consumers. Oxford Economics projects gross domestic product could contract over the next two years before returning to growth of more than 5% by 2019.
“Argentina’s domestic credit-to-GDP is currently less than 20%, well below the regional average of close to 45%. In addition, excluding household indebtedness (via consumer credit, car loans and/or mortgages), the corporate domestic credit-to-GDP falls to around 10%. In the case of the sample of companies under analysis, the net debt-to-EBITDA ratio reaches only ~1.5x, while, in the case of financial institutions, the loans-to-equity ratio is less than 5x. In light of this, in general terms, Argentine firms could increase their leverage to finance investments – and drive faster earnings growth – without creating any material impact on their repayment capacity or credit quality,” according to the Raymond James note posted by Barron’s.
Global X MSCI Argentina ETF