Argentina Economic Outlook. Second quarter 2021

Summary

After falling 9.9% in 2020, the economy is recovering faster than expected. Nevertheless, the rebound is heterogeneous across sectors. The health situation remains challenging, in a 2021 also marked by the mid-term elections in October.

Key points

• Key points:
• The global GDP is expected to grow by 5.9% in 2021, mainly driven by the performance of China and USA. In the case of Argentina, a GDP growth of 7% is forecasted for this year. A slowdown in the pace of the economic recovery is expected for the coming quarters.
• The pandemic aggravated two important macroeconomic imbalances in the country: 1) a 40-year record-high fiscal deficit, and 2) a monetary overhang, as a result of the monetary assistance needed to finance the fiscal deficit in 2020. The approach of the government to address these issues will define the economic performance of the country during the rest of the current administration.
• Inflation would accelerate from 36.1% in 2020 to 50% in 2021, pushed by the economic recovery, the monetary overhang and loose macroeconomic policies.
• The government is using the FX as the main nominal anchor against the rising inflation. The high commodity prices would allow the Central Bank to contain the depreciation rate. We expect a FX rate of 117 ARS/USD by Dec-21. Simultaneously, the government is resorting to price controls and freezing utility prices. The Central Bank would not raise the interest rates until mid-term elections in October.
• No significant news were announced about the program with the IMF. The potential agreement would be reach no sooner than Nov-Dec 2021. The consistency of this new program will define the economic performance of the country during the coming years.

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