RBS Raises Argentina's 2010 GDP Growth Forecast to 7% on Election Spending

RBS Securities Inc. lifted its forecast for Argentine economic growth this year to 7 percent from 4.4 percent, citing the likelihood that President Cristina Fernandez de Kirchner’s administration will fuel consumption ahead of 2011 elections.

“This ‘full throttle’ growth strategy is likely to exacerbate current distortions in the economy,” RBS economist Boris Segura wrote in a report today from Stamford, Connecticut. This would leave “a heavy legacy to the next administration,” Segura said.

The new forecast comes after South America’s second-largest economy expanded at the fastest annual pace since 2008 in the first quarter, led by an increase in domestic consumption. Gross domestic product grew 6.8 percent from a year earlier and 3 percent from the last three months of 2009, the National Statistics Institute said.

Segura said inflation is running at 21 percent. According to government statistics, consumer prices rose 10.7 percent in May from a year earlier. Prices will rise 26 percent this year after a 15.3 percent increase in 2009, according to Buenos Aires-based research company Ecolatina.

“Given high inflation, negative real interest rates and expectations of subdued exchange rate depreciation, we are of the view that consumers are just advancing purchases as an inflation hedge,” Segura said.

Fernandez may boost social outlays and pensions, Segura said. He forecast primary spending to rise about 40 percent by year end.

“This expansionary fiscal policy is a tailwind for economic activity going forward,” Segura said.

To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net; Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

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