Don't cry too much for Argentina

Argentina's technical default has increased capital flight (estimated at USD20bn) but the bulk of the consequences will be for local businesses - and to a certain extent international suppliers. Contraction in domestic demand (recession estimated at -1.8% in 2014), credit crunch and risk of change, and high political uncertainty and interventionism look like a perfect storm.

Industries to watch: (i) retail electronics and machinery and equipment -domestic demand relies on foreign supplies; (ii) automotive -higher tariffs have undone positive developments seen for other durable goods (a preferred form of savings); and (iii) energy-intensive industries �are subsidies sustainable?

Our central scenario (Survival; 50%) developed here has two alternatives: (i) Escalation (40%): a more severe recession (-4%) and a further depreciation of the ARS (~30%); and (ii) Explosion (tail risk; 10%): a massive default of public debt, leading to recession of -10%, and costing some billions to exporters in the region.