Argentina Economic Outlook. First quarter 2021

Summary

The COVID-19 pandemic hit Argentina's economy hard, which is in its third consecutive year of recession. With the second wave of contagion in sight, the government is negotiating a new program with the IMF that could be crucial for the country's sustainable growth.

Key points

• Key points:
• Global GDP will expand by about 5.3% in 2021 and 4.1% in 2022 after falling by about 2.6% in 2020. In the near term, growth will be affected by the more negative evolution of the pandemic in many countries.
• We lowered Argentina's GDP decline in 2020 to 11% due to better than expected 3Q20 data. Given the high informality of the labor market and the lack of dynamism in the economy, we forecast a slow decline in unemployment.
• The primary fiscal deficit in 2020 reached 6.5% of GDP. The Ministry of Economy showed greater fiscal responsibility in 4Q10 and by 2021 we expect a primary fiscal deficit of 4% of GDP.
• Price increases in 2020 were contained by the recession, the exchange rate lag and the regulated price freeze. We maintain our baseline scenario of 50% inflation for 2021, which incorporates the high monetary imbalance, a weak monetary policy stance and the corrections of part of the exchange rate and tariff arrears accumulated in the COVID-19 year.
• Any macroeconomic program agreed with the IMF should include sound fiscal consolidation to make debt sustainable with high probability. This reduces to some extent the chances of launching the new program before the legislative elections, so only partial progress announcements could be expected until then.

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