Wednesday 29 June 2016

Angola, Argentina, Aruba and Austria Country Risk Report Q3 2016; New Report Launched

Angola, Argentina, Aruba and Austria Country Risk Report Q3 2016

2016 will mark another year of slow growth in the Angolan economy as the legacy of the oil price collapse continues to pose a headwind. The completion of several legacy investments into the hydrocarbon sector will see some uptick in growth in 2017, but the structural vulnerabilities attached to oil dependence will remain a persistent issue for the economy.

A more robust recovery in oil prices and the government's commitment to cutting expenditures will facilitate a smaller fiscal deficit in Angola than previously expected. Nevertheless, the public debt burden will remain dangerously high and government cuts will entail a slowdown in the much needed development of the country's infrastructure network.

The beginnings of a recovery in the oil price and a strong outlook for production mean the risk posed by Angola's external position will decrease over the next 12 months. However, any narrowing of the country's trade deficit will not portend a structural improvement in economic fundamentals of Angola's external position, which will remain highly dependent on the global oil market.

Inflation will remain high as prolonged food shortages increase the cost of the consumer basket in Angola, prompting the Banco Nacional de Angola to carry out further rate hikes before year-end 2016. However, the decision to implement a more stable trajectory of kwanza devaluations will see inflation slowly fall from its current highs in the second half of 2016.

Although by no means guaranteed, a managed transfer of power to a chosen successor is the most likely outcome of President José Eduardo Dos Santos' decision to step down from office in 2018. While ignoring democratic principle in any transition of power would increase resentment towards elites and heighten political risk, policy continuity would more than offset most of the impact on investor sentiment.

Major Forecast Changes
We have revised our forecasts for Angola's budget deficit in 2016 as oil prices trend higher than previously expected, and the government signals its commitment to more austere fiscal policy with a revised budget and negotiations with the IMF. As such, we expect the deficit to equal just 4.3% of GDP, compared to our previous forecast of 8.1%.


A substantial uptick in investment is likely following a devaluation and liberalisation of Argentina's external accounts. Nonetheless, this will likely not begin until the latter half of 2016, leading to a contraction in real GDP as private consumption declines in response to falling real purchasing power. Thereafter, Argentina will enter a period of robust growth as foreign investment flows into the country.

The government of President Mauricio Macri will move to reduce the country's budget deficit in the coming years by reducing government subsidies on electricity. This will temper inflationary pressures as the government can move away from printing new pesos to finance its substantial deficit. Nonetheless, subsidy reduction will be gradual in order to limit the shock to consumers' disposable incomes.


Economic growth in Aruba will tick upwards during the next 10 years due to a steady increase in tourism arrivals growth and as the reopening of Aruba's oil refinery bolsters fixed investment and exports. That said, the reopening of the refinery will not boost economic growth to the extent that the Aruban authorities expect given the financial difficulties experienced by Petróleos de Venezuela.

Inflation will tick upwards over our 10-year forecast period, driven primarily by a gradual recovery in domestic demand. Nevertheless, with the Centrale Bank van Aruba set to maintain its currency peg to the US dollar, anchoring imported inflationary pressure, headline price growth will remain relatively subdued.

Aruba's fiscal deficit will narrow over the next 10 years as the government implements measures to cut spending and boost revenues. More prudent fiscal policy will drive a narrowing of the fiscal deficit and a moderation in the government's debt load.

Aruba's current account balance will remain largely in surplus over the next 10 years owing to robust tourism receipts and refined oil exports. The country's stronger current account balance, relative to the previous five years, will ensure that Aruba's external debt remains sustainable over the next decade.

Aruba's political environment will remain stable over the next decade; a result of policy continuity and rising economic growth. In addition, strong ties to the Netherlands will ensure continued improvement in the quality of Aruban institutions over the years ahead.


Austrian real GDP growth will accelerate in 2016, but economic activity will lag behind regional peers, despite improving external demand from the eurozone.

On the back of the government’s tax reform; we expect household consumption growth to accelerate in the quarters ahead, significantly adding to GDP growth.

At a federal level, support for the Freedom Party (FPO) exceeds that of either the SPO or OVP, which we expect to hold throughout 2016. The FPO is now the junior government coalition member in two Austrian states (Burgenland and Upper Austria).

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