In 2016, the contraction of activity in Argentina was mainly linked to the weakness of domestic demand. In 2017, capital investment should be the main driver of growth. Investors' interest in the country is taken off following the liberalisation of capital controls and the substantial improvement in the business environment. Inflows of foreign capital are expected in the energy and manufacturing industry sectors (automotive in particular) and real estate. State-owned businesses also benefit from more favourable access to credit on foreign markets in order to increase their production capacities. Public investment should also expand thanks to the increase in infrastructure spending planned by the government. The growth in capital investment is however likely to limit gains in terms of foreign trade, due to the expected increase in imports while the positive results in terms of employment will favour household consumption. Furthermore, this should benefit from the maintenance of the programs for assistance with consumption, the expected gradual fall in interest rates and the downturn in the inflation rate. The forecasts of a fall in inflation will however remain conditional on the results of the forthcoming salary negotiations at the start of the year.

In 2016, the government deficit deteriorated further, despite budgetary adjustment measures which consisted of eliminating subsidies on the price of electricity, gas and transport and reducing total payrolls in the public sector. In terms of receipts, the contraction in economic activity impacted the collection of taxes, VAT in particular, as did the elimination of taxes on agricultural products (with the exception of soya) intended for export. This trend is likely to continue; the 2017 budget sent to Congress is based on a primary deficit objective of 4.2% of GDP, compared with 3.3% of GDP announced previously. Infrastructure and pension expenditure is thus likely to increase by 32% and 35% respectively. In the run-up to the legislative elections in October 2017, the priority of the government now appears to be turned towards the promotion of consumption, to the detriment of the budgetary objectives announced in the early part of the mandate of President Macri. The Ahora 12 program enabling the population to purchase consumer goods, paid in 12 installments with zero interest rates, has thus been transformed into Ahora 18, which will extend the zero-interest payment terms to 18 months, despite the artificial price inflation which it provokes. The potential receipts from the tax amnesty (estimated at 0.5% of GDP) as well as the recovery in the economy should nevertheless contribute to the growth of receipts during the year. The approval by the Senate of the law on tax reform presented by the opposition (increases in the tax-free income allowance and exemptions in particular) is nevertheless likely to contribute to a deterioration in the government deficit in Argentina.

In terms of foreign trade, the current account deficit is likely to deteriorate as a result of the dynamism in imports (capital equipment in particular) driven by the increase in capital investment. Furthermore, the company remains dependent on energy imports as result of the lack of investment in this sector, despite the abundance of natural resources (oil and gas). Agricultural exports (soya, maize and corn), which represent almost 60% of the total export sales should nevertheless remain at this level. Since 2016, the latter have benefited from the elimination of taxes and export quotas. Exports of goods and services should benefit from the recovery in demand from Brazil, which nevertheless is likely to remain modest. The services balance of trade is likely to improve, thanks to the expected increase in tourist numbers. The return of investors' confidence in the country should furthermore contribute to the balance of revenue surplus, thanks to inflows of capital which are likely to largely compensate repatriations of dividends. In terms of foreign trade, the current account deficit is likely to deteriorate as a result of the dynamism in imports (capital equipment in particular) driven by the increase in capital investment. Furthermore, the company remains dependent on energy imports as result of the lack of investment in this sector, despite the abundance of natural resources (oil and gas). Agricultural exports (soya, maize and corn), which represent almost 60% of the total export sales should nevertheless remain at this level. Since 2016, the latter have benefited from the elimination of taxes and export quotas. Exports of goods and services should benefit from the recovery in demand from Brazil, which nevertheless is likely to remain modest. The services balance of trade is likely to improve, thanks to the expected increase in tourist numbers. The return of investors' confidence in the country should furthermore contribute to the balance of revenue surplus, thanks to inflows of capital which are likely to largely compensate repatriations of dividends.

Elected in November 2015, the government of President Mauricio Macri is making every effort to reduce the economic distortions and to put the economy on the path to sustainable growth. However, in view of the extent of the poor economic management by the previous government, the process of adjustment involving austerity measures (reductions of subsidies in particular) combined with the high inflation rate caused by the devaluation of the peso have contributed to the fall in the popularity of the President. In order to give the greatest possible chance to the right-wing coalition, Frente Cambiemos, to obtain additional seats in the Congress during the legislative elections in October 2017, the government is concentrating more effort on the revival of private consumption. The business environment has improved sharply. The elimination of barriers to importing and exporting, the resolution of the conflict with the vulture funds, the return of dialogue with the International Centre for Settlement of Investment Disputes (ICSID) and the gradual settlements of trade disputes decided on in the past, are reinforcing the Argentine institutional framework and henceforward contributing to attracting foreign investment.