Argentina Economic Outlook. Fourth Quarter 2021

We raised our GDP growth forecast for 2021 to 7.5%, but we do not expect a dynamic performance in the coming two years (average annual growth: 2%). The key question is whether that will be a result of the correction of imbalances or due to a postponement of them. An agreement with the IMF would shed light on this issue.

Key points

• Key points:
• Global recovery will continue, although with a lower-than-expected momentum. Covid-19 vaccination and the fiscal-monetary stimuli will support the recovery, but supply shocks are slowing it down. Global growth is expected to be 6.1% in 2021 and 4.6% in 2022, slightly below expectations.
• We upgraded our GDP growth forecast for Argentina in 2021 from 6.5% to 7.5%, due to a lower-than-expected decline in 2Q21. However, economic activity will not be buoyant in the coming quarters, since the economy will have to process the current economic imbalances. We lowered the 2022 GDP growth forecast to 2.3% (previously 3.5%).
• The government suffered a major defeat in the primary midterm elections, which seems difficult to revert in November's general election. This unexpected outcome triggered tensions within the ruling coalition, which resulted in a cabinet reshuffling.
• Inflation will remain high in 2021 (50% YoY) and will accelerate to 54% in 2022 (previously: 50%). We assume that there will be an adjustment of the exchange rate and public utility rates in 2022. The monetary overhang will be lower in 2022 and we expect a less expansionary monetary policy (slightly higher interest rates). However, money issuance to finance the Treasury and cover quasi-fiscal deficit will remain high, thus setting a high floor for inflation.
• There have not been relevant news regarding a new program with the IMF. Our baseline scenario assumes an agreement by March 2022. For the resulting program to be consistent, it should include a progressive correction of the current fiscal, monetary and exchange rate imbalances, adjust relative prices (utility prices and exchange rate), define international reserves targets and economic reforms to restore genuine growth.

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