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Goldman Sachs Lifts Argentina 2010 GDP Forecast to 8%

July 12 (Bloomberg) -- Argentina’s economy will expand 8 percent in 2010, up from a previous forecast of 5.3 percent because of “lax” fiscal and monetary policies, a record harvest and higher commodities prices, Goldman Sachs Group Inc. economist Alberto Ramos said in an e-mailed report.

Growth will slow to 5.8 percent next year and the economy will face a “risk of a hard landing” in 2012, Ramos said. Inflation will be 25 percent this year, he said.

“The current growth cycle is beset with fundamental flaws -- significant acceleration in inflation, erosion of the current account balance and record-high levels of primary spending -- that could be a source of medium term vulnerability,” Ramos wrote in the report. “The over-stimulation of the economy is probably not independent of the political cycle, with the presidential elections in late 2011.”

The economy, South America’s second largest after Brazil, is recovering from a slump that reduced growth to 0.9 percent last year, the slowest since Argentina pulled out of a recession in 2003. President Cristina Fernandez de Kirchner announced in May an 8 billion-peso ($2.03 billion) loan program for companies to help them boost production and exports.

Gross domestic product grew 6.8 percent in the first quarter from a year earlier and 3 percent from the last three months of 2009, the National Statistics Institute said.

“Given the peculiarities of the current growth cycle and the authorities’ neglect of monetary variables, inflation is likely to reach 25 percent this year and to remain high next year,” Ramos wrote.

Inflation and the deterioration of the current account will likely push the government to allow a drop of the peso to more than 4 pesos per dollar by year end, Ramos said.

In trading today, the peso was little changed at 3.9368 per dollar at 1:56 p.m. New York time from 3.9355 on July 8.

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

To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net

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