Argentina Economic Outlook. October 2024

Summary

The government maintains a firm commitment to fiscal balance while upholding a "zero monetary issuance" policy for all items arising from the public sector. The slowdown in inflation has stalled since May, remaining around 4% monthly, and economic activity shows signs that the recession may have ended in Q2 2024.

Key points

• Key points:
• The government achieved a financial surplus of 0.3% of GDP and a primary surplus of 1.5% of GDP in the first 8 months of 2024, driven by a contraction in public spending (-30% in real terms). A fiscal rule was proposed for the 2025 budget, which would offset any revenue shortfall with proportional spending cuts. A "zero issuance" scheme was established, whereby the only monetary expansion can come from the unwinding of LEFIs and LECAPs by banks to extend credit.
• The Central Bank (BCRA) has maintained a crawling peg of 2% per month since December 2023 as a strategy to reinforce the slowdown in inflation, but its effectiveness has diminished and is making it harder to accumulate international reserves. We expect a gradual easing of currency restrictions toward the end of 2024, with FX rate unification planned for the first half of 2025.
• Inflation has stabilized around 4.2% per month since May, following a sharp slowdown in the first half of the year. The current scheme seems to have reached its limits in terms of inflation control, so additional measures, such as FX rate unification and positive real interest rates, are required to consolidate disinflation in 2025.
• GDP contracted by 3.4% in the first half of 2024; however, signs of recovery have been evident since Q3. The emerging rise in real wages has also begun to contribute to greater economic activity. A 4% GDP decline is expected for 2024, followed by a 6% rebound in 2025, driven by investment, exports, and private consumption.
• The positive image of the current administration has seen its first significant drops in the last three months, but despite the challenges, the government’s popularity remains at high levels.

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