Argentina Economic Outlook. First quarter 2022

Summary

3Q21 GDP was better than expected and reached pre-COVID-19 levels. We modified our GDP growth forecast for 2021 from 7.5% to 10%. We expect a weak activity performance in 2022 (+3.5%). The recent announcement of an understanding with the IMF lowers the likelihood of more adverse risk scenarios.

Key points

• Key points:
• Global growth will be lower than expected over the next two years but will remain relatively robust. After a 3.2% drop in 2020, global GDP is estimated to grow around 6% in 2021 and to expand 4.4% in 2022 and 3.8% in 2023.
• The Government and the IMF announced that they have reached concrete understandings regarding a new program to refinance debt maturities with the multilateral organization between 2022 and 2024 (approx USD 41bn). While details are still pending, the Minister of Economy informed that there will be an Extended Fund Facilities (EFF) agreement with disbursements over the next two and a half years. The macroeconomic conditionalities of the agreement are in line with our baseline scenario.
• The Government suffered a major defeat in the legislative elections and was weakened for the last two years of its office term. Since it lost its automatic quorum in the Senate and was left with fewer representatives in the Lower House, it will be more dependent on agreements with the opposition to solve the economic imbalances that are yet to be addressed.
• Argentina is going through the strongest wave of COVID-19 infections since the beginning of the pandemic, but the number of deaths and hospitalizations remain subdued thanks to the high vaccination (more than 76% of the population has already received 2 doses and almost 28% already has a booster dose).
• The lax monetary policy and the strong monetary issuance to finance the Treasury set a high floor for inflation in 2022, which we forecast at 55%, in a context of some adjustments of utility prices and in the exchange rate aiming to partially correct the current imbalances.

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