Moody's: Argentina continues to face economic and credit challenges in the wake of the election

Argentina's Caa1 government bond rating and its negative outlook reflect ongoing credit weakness tied to policies that have led to macroeconomic imbalances, political volatility and limited access to external financing. These conditions are somewhat balanced by the country's economic development and moderate government debt metrics, Moody's Investors Service says in its annual credit analysis.

While Argentina's economy is larger and more diverse than other Caa-rated countries, future economic growth is likely to remain low.

"The economic slowdown has multiple causes, including low confidence, weak investment, high inflation, import constraints and lower demand from Brazil, a key trade partner," Moody's Vice President -- Senior Credit Officer Gabriel Torres says.

Moody's anticipates GDP will contract by 1% this year, but expects a modest recovery in 2016.

Additionally, Moody's evaluates Argentina's institutional strength as "very low" owing to a combination of haphazard policymaking and highly contentious political process. It is a key ratings constraint.

National presidential elections will be held in October, and a change in government might lead to policy changes. These changes could prompt resolution of "holdout" creditor litigation involving its 2014 default and open access to international capital markets, thus an important credit positive development.

The credit analysis serves as an update to investors and is not a rating action.

The report elaborates on Argentina's credit profile in terms of economic strength, institutional strength, fiscal strength and susceptibility to event risk, which are the four main analytic factors in Moody's Sovereign Bond Rating Methodology.