MercoPress. South Atlantic News Agency

Roubini forecasts “cloudy” outlook for the Argentine economy in 2011

The New York University professor who anticipated the collapse of the housing boom in the US

Nouriel Roubini, the New York University professor who predicted the global financial crisis, said the outlook for Argentina’s economy is “cloudy” and GDP is slated to decline in 2011 as the global slowdown may lead to fewer exports.

The country’s “loose” fiscal and monetary policies have encouraged domestic demand and led to high inflation, Roubini said Monday in a speech in Buenos Aires.

“While overall economic growth is still robust right now, the economic outlook is cloudy because of external factors and domestic factors,” Roubini said. “The growth of the economy that is coming from the net export part of the economy is going to weaken over time because global economic growth is slowing down and exports and imports globally are going to slow down.”

According to Argentina’s central bank the economy will expand 9.5% this year, the fastest pace since 1992, according to the central bank, after a 0.9% expansion in 2009. President Cristina Fernandez de Kirchner has encouraged economic growth by stimulating domestic consumption, raising wages, pensions and helping companies save jobs during the 2009 global crisis.

Roubini said that the peso’s appreciation in real terms, due to an annual inflation rate of about 20%, may lead to a weakening of competitiveness in overseas markets. In nominal terms, the peso has weakened 3.4 percent in the past 12 months.

“With a domestic economy that is driven by mostly domestic demand right now, artificially boosted by easy money, easy credit and easy fiscal policy, and an external sector that so far is doing well, but with the fixed exchange rate and high inflation, the real appreciation is going to lead to a significant weakening of that account,” Roubini said.

Some government decisions, including using central bank reserves to pay debt, the nationalization of the pension funds and questions over the 2011 presidential election is discouraging the capital inflows seen by other emerging market nations such as China, Brazil and Turkey, Roubini said.

Argentina, which last year reported a record 17 billion US dollars trade surplus, is the world’s third-largest soybean producer and second-biggest corn exporter.