Argentina Economic Outlook. March 2024

Summary

Javier Milei's government took office aiming to have a less regulated and more market friendly economy with the private sector as the main driver of economic growth. The core of his macroeconomic policy is to achieve fiscal equilibrium and eliminate monetary issuance to cover public spending as of 2024.

Key points

• Key points:
• The new Administration has started correcting relative prices. The FX rate rose 120% in Dec-23 and has been moving at a 2% MoM pace since then. Regulated prices, such as transport and utilities, are also being adjusted. Monthly inflation will remain high during the first half of the year due to these adjustments and we expect it to accumulate 175% in 2024.
• Economic activity has been falling since 4Q23 and we expect it to remain in negative territory during 1H24, as it captures the recessionary effects of the price corrections and the inflationary acceleration. We project a GDP rebound from 2H24, averaging a 4% decline this year.
• 2024 started with a fiscal surplus in January, while no money to assist the Treasury was issued on a net basis so far this year. However, the adjustment in spending was mostly due to a fall in social assistance, pensions and salaries compared to inflation, which will require additional measures to make this path sustainable. We project a primary fiscal deficit of 0.8% of GDP for 2024.
• Once this stage of price corrections and the Central Bank’s balance sheet clean-up is over, we expect the launch of an economic program focused on disinflation, with an initial acceleration of the exchange rate devaluation accompanied by an increase in interest rates, to turn them positive in real terms during 2H24.

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