Argentina Economic Outlook. October 2023

The surprising outcome of the primary elections left an open end to the October voting and heightened uncertainty, increasing volatility and further worsening expectations for the coming year. We maintain our scenario of recession and high inflation for 2023 and 2024.

Key points

• Key points:
• The most voted candidate in the primary elections (PASO) was Javier Milei of La Libertad Avanza, who was third in the polls. This surprising result leaves an open scenario for the general elections of October 22, in view of the small difference between the three main parties and the flow of new voters expected given the high abstention in the primary voting.
• The need to stop the fall of international reserves led the Central Bank to validate a 22% FX rate jump on Monday post-PASO. The government announced that it will maintain the new parity (ARS/USD 350) until October, but the immediate pass-through to prices has already eliminated the “gain” in FX competitiveness, so we foresee further depreciations since end-October, pushing the FX rate in Decembre 2023 towards ARS/USD 630.
• Inflation would reach 200% in 2023 and will remain high during the first six months of 2024, given that corrections in utilities and FX rate are expected from December 2023. In the 2H24, it would only begin to decelerate, accumulating 155% in the year (if the incoming government embarks on a relatively successful stabilization plan).
• The latest economic activity data were better than expected, but the jump in the FX rate in August and the acceleration of inflation will deteriorate socioeconomic conditions in the 2H23. We maintain the 3.5% GDP decline forecast for 2023 and deepen the contraction for 2024 to 2.5%.
• Good outlook for the external accounts in 2024, due to the recovery of agricultural exports and the expected positive performance of the energy sector. This fact, in addition to the real depreciation of the peso, will reverse the trade deficit of 2023 and significantly reduce the deficit in the Current Account of the Balance of Payments, helping to stabilize the foreign exchange market.

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