Argentina Economic Outlook. December 2024

Summary

The economic recovery and the good financial context, within a framework of fiscal balance and monetary discipline, show that the worst of the crisis is over. Society maintains its support for the government, giving it room to address the challenges of fiscal balance sustainability and FX market flexibilization.

Key points

• Key points:
• The fiscal balance will end the year in equilibrium after 15 years of deficit. The aggressive expenditure adjustment will enable a primary fiscal surplus of 1.7% of GDP, despite the contraction in revenues caused by declining economic activity. In 2025, we expect the Treasury to renew its commitment with the goal of zero fiscal deficit.
• The maintenance of the crawling peg at 2% m/m throughout the year has reinforced the disinflation process, but slowed down the accumulation of reserves by the Central Bank (BCRA). We anticipate a gradual normalization of the exchange rate market during 2025.
• Inflation will reach 120% this year, in a disinflation process defined by monetary stringency and a persistent crawling peg of the currency, while also addressing the misalignment of relative prices. By 2025, inflation is expected to settle around 35%, with a balance of risks tilted towards a lower inflation.
• -After the end of recession in 2Q 2024, economic activity showed better-than-expected performance in 3Q 2024, with an incipient recovery in real wages. As a result, GDP is expected to decline by 3.8% this year, followed by a recovery of up to 5.5% in 2025, driven by private consumption and investment.
• The financial improvements seen in 4Q 2024 are complemented by society’s renewed confidence in the government, creating a positive outlook for 2025. Additionally, Argentina could benefit in the short term from the favorable relationship of the government with Donald Trump’s administration.

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