With hopes of a swift resolution to the Argentine debt dispute fading, capital flight appears to be picking up. As a result, the damage to the real economy is likely to be greater than we had initially anticipated. We now think that the economy will contract by 2-3% this year, while the peso may be devalued to 10/$ by year-end. What’s more, there is a growing risk that the recession will spill over into 2015.
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