Argentine inflation forecasts jump as political uncertainty dents economic outlook

Credit: REUTERS/Agustin Marcarian

By Hugh Bronstein and Walter Bianchi

BUENOS AIRES, Sept 3 (Reuters) - Argentine economists sharply hiked 2019 inflation forecasts and cut their gross domestic product outlook for the year, according to a central bank poll released on Tuesday, following a wave of political uncertainty that beat the local peso down 26% in August.

The survey came two days after the government announced capital controls in a bid to halt a run on the peso currency.

The controls, which followed an announcement that Argentina would extend the maturities of about $100 billion in debt, were a massive setback for the government's free-markets reform effort.

Inflation was seen at 55% for the year, according to the survey of 39 analysts, up from 40% in the same central bank poll a month earlier. The new weakness in the peso, which fell 50.5% against the U.S. dollar last year, is expected to lead to rising consumer prices over the months ahead.

Gross domestic product was forecast to shrink 2.5% this year, the poll said, versus the previous month's survey, which saw 2019 GDP shrinking by 1.4%.

The poll was conducted after the Aug. 11 primary election, which triggered a sharp fall in the value of the peso currency when business-friendly President Mauricio Macri was soundly trounced by his populist-leaning rival Alberto Fernandez.

Peronist Fernandez is now the front-runner ahead of the Oct. 27 general election. Macri is running for a second term, but his popularity has been beaten down by the poor economy.

"Capital controls imply a full reversal of Macri's reforms," said Alberto Bernal, chief emerging markets strategist at XP Investments in New York. "He did his best to try to change the course of the country, but the situation is dire now."

On Sunday, the government authorized the central bank to restrict purchases of dollars as it burns through reserves to prop up the peso.

Fernandez's vice presidential running mate is former President Cristina Fernandez de Kirchner, a free-spending populist who applied heavy currency controls during her eight years in power through December 2015, when Macri took office.

Her presence on the ticket has caused concern about the return of the interventionist left to power, although the more moderate Fernandez has said he alone will set policy.

"The markets have ZERO confidence on the likely future government," Bernal said in an email. "The hope of the markets is that Alberto Fernandez will prove a pragmatist."

(Reporting by Hugh Bronstein and Walter Bianchi; editing by Bill Berkrot)

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