Opportunities exist across a range of consumer-oriented sectors, but the country will continue to lag behind more investor-friendly economies in Latin America as concerns about spiralling inflation and government interference remain unaddressed.

While economic data remains positive, we believe that Argentina is moving along an increasingly unsustainable macroeconomic policy trajectory. This could lead to a devaluation of the peso if the current distortions are not addressed.

The domestic consumer will continue to be a key driver of economic growth, while the supporting role of exports and fixed investment could be eroded by weak commodity prices and an increasingly hostile business environment.

The resounding victory of Cristina Fernández in the October 2011 presidential elections will likely see a perpetuation of the current expansionary economic policy mix, which will in turn cause inflation to remain in the double-digits for a prolonged period of time.

Major Forecast Changes

Given the Argentine central bank's tight grip on the ARS /US $ exchange rate, which has resulted in a widening of the spread between the official and the unofficial exchange rates, we have started forecasting a parallel ARS /US $ exchange rate based on purchasing power parity. As we expect inflation to remain high in Argentina over the next few quarters, we are forecasting an average parallel rate of ARS 5.35/US $ for 2012 and ARS 6.1/US $ for 2013.

Key Risks To Outlook

Upside Risk To 2012 - Foreign Direct Investment: Progress in reaching a deal with the Paris Club group of outstanding creditors could prompt an uptick in inflows.

Upside Risks To 2012 - Real GDP Growth: The authorities' determination to make economic growth their first priority could see fiscal and monetary policy expand more than we currently expect, pushing real GDP growth above our 2102 forecast.

Click for Report details:Argentina Business Forecast Report Q1 2012