Argentina Economic Outlook. Second Quarter 2022

Summary

The government reached an enforceable agreement with the IMF, avoiding a default scenario. This is good news for Argentina, but its gradual approach does not change the overall macroeconomic scenario, nor does the absence of structural reforms create the conditions for a sustainable growth path.

Key points

• Key points:
• The global economy will slow down more than expected. After expanding 6.1% in 2021, global GDP is expected to grow 4.0% this year and 3.6% in 2023. The Ukraine-Russia conflict and its associated sanctions will have negative effects on growth and inflation (through commodities), financial volatility, confidence and supply chains.
• Argentina's GDP grew 10.3% in 2021, mostly driven by the activities normalization that followed the removal of the mobility restrictions. We expect a 3.5% GDP expansion in 2022, mainly explained by the statistical carryover from 2021.
• The vulnerability of the Argentine economy to the negative effects of the war is relatively low. We project a slightly positive impact on the external accounts given the increase in agricultural prices will be partially offset by the spike in gas prices which increases energy imports. The latter will also negatively affect the fiscal deficit due to the increase in subsidies.
• We expect an exchange rate of 154 ARS per USD at the end of the year, with a higher depreciation rate going forward to compensate for the lost ground against inflation and to facilitate the accumulation of reserves. The Central Bank has been raising interest rates to bring them closer to inflation since January. We expect further increases in MPR to 47% in the short term.
• The high levels of monetary issuance in recent quarters, within the framework of a monetary policy that remains lax, impose a high floor for inflation. Inflation will also be pushed up by utilities corrections, currency depreciation, and a higher global inflation. Thus, we expect inflation to reach 58% in December 2022.

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