Divergence in Four Latin American Economies: Argentina's Fiscal Improvement, Chile's Growth Slowdown
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Divergence in Four Latin American Economies: Argentina's Fiscal Improvement, Chile's Growth Slowdown
Goldman Sachs analyzes the continuation of Argentina's fiscal surplus, Chile's Q1 GDP contraction despite robust domestic demand, the narrowing of Colombia's trade deficit, and expectations for Ecuador's economic activity.
- Argentina recorded a fiscal surplus of 268 billion pesos in April, marking the fourth consecutive month of surplus
- Chile's Q1 real GDP contracted by 0.5% year-over-year; full-year growth forecast lowered to 1.6%
- Colombia's March trade deficit is expected to narrow to $500 million
- Ecuador's March economic activity index is projected to grow by 1.5%
Report interpretation
Overview
This report focuses on the latest economic dynamics in four Latin American countries: Argentina's continued fiscal improvement, Chile's slowing economic growth but resilient domestic demand, Colombia's narrowing trade deficit, and Ecuador's rebounding economic activity expectations. The report analyzes the current economic status and policy impacts of each country through dimensions such as fiscal balance, GDP breakdown, and trade data.
Core views
Regarding Argentina's fiscal situation, April saw an overall surplus of 26.8 billion pesos, primarily because the primary surplus of 63.3 billion covered interest debt payments of 36.5 billion. Although tax revenue growth of 26.9% lagged behind inflation at 32.4%, expenditure discipline offset the revenue decline. Chile's Q1 real GDP contracted by 0.5% year-over-year, mainly due to a 3.1% contraction in mining and a decline in exports; however, domestic demand increased by 0.8% quarter-over-quarter, with private consumption growing by 1.0% supporting internal demand. Colombia's March trade deficit is expected to shrink to $500 million, the lowest since June 2022, benefiting from strong oil, gas, and gold exports. Ecuador's March economic activity index is expected to increase by 1.5% year-over-year, with rising oil production offsetting February's weak performance. Chile's growth structure shows that a surge of 7.2% in government consumption made a significant contribution, but a 3.8% decline in fixed investment dragged down the economy. The current account surplus stood at $1.88 billion, a marked improvement from the deficit in the same period last year, mainly due to the expansion of the merchandise trade surplus to $9.6 billion. Foreign direct investment inflows reached $5.5 billion, cumulatively accounting for 4.4% of GDP over the four quarters.
Analysis framework
The report employs a macroeconomic data decomposition method: for Argentina, it focuses on year-over-year and quarter-over-quarter changes in fiscal balance and the impact of subsidies; for Chile, it analyzes growth drivers through the expenditure approach to GDP composition (consumption, investment, net exports); for Colombia and Ecuador, it emphasizes tracking trade balance and production data. Methodologically, it reflects a 'supply-demand framework' and 'turning point analysis,' such as the divergence between Chile's resilient domestic demand versus weak external demand, and the potential pressure of surging subsidies on Argentina's fiscal sustainability.
Methodology notes
Fiscal Balance Analysis
Evaluates fiscal health by comparing government revenue, expenditure, and interest on debt. The Argentina case shows that even when revenue growth lags inflation, expenditure discipline can maintain a surplus.
GDP Expenditure Approach Composition Analysis
Decomposes GDP growth into contributions from consumption, investment, government spending, and net exports to identify growth drivers. In the Chile case, private and government consumption offset the decline in investment.
Cyclical Changes in Trade Deficit
Tracks the 12-month cumulative trade balance to judge external balance trends. Colombia's trade deficit narrowing to a cyclical low reflects improved export competitiveness.
Key data
- Argentina April Fiscal Surplus26.8 billion pesosFourth consecutive month of surplus; primary surplus of 63.3 billion covered interest debt of 36.5 billion
- Chile Q1 Real GDP Year-over-Year-0.5%Below the expected -0.3%; mining GDP contracted by 3.1%
- Chile 2026 Growth Forecast1.6%Downgraded by 0.2 percentage points, at the lower bound of the central bank's forecast range
- Colombia March Trade Deficit Expectation$500 millionLowest since June 2022; strong oil, gas, and gold exports
- Ecuador March Economic Activity Index Expectation1.5% yoySupported by a 1.4% year-over-year increase in oil production
Impact & implications
Argentina's fiscal improvement enhances policy space, but a 148.3% surge in energy subsidies may constrain sustainability. Chile's domestic demand resilience may alleviate pressure for monetary easing, but weak external demand continues to drag on growth. If Colombia's trade deficit narrowing continues, it could improve the current account balance. Ecuador's economic activity rebound requires observation of oil production stability.
Risks
- Sustained high growth in Argentina's energy subsidies threatens fiscal discipline
- Continued weakness in Chile's export sector exacerbates economic downside risks
- Improvement in Colombia's trade deficit depends on the stability of commodity prices
What to watch
- Sustainability of Argentina's fiscal surplus in subsequent months
- Whether Chile's private consumption can offset the decline in investment
- Whether Colombia's trade balance will turn into a surplus
- Sustainability of Ecuador's oil production growth