Argentina Economic Outlook. Third Quarter 2021

Summary

We adjusted our 2021 economic growth forecast from 7% to 6.5%. This year will be notably marked by the midterm elections. The macroeconomic performance of Argentina during the coming years will be defined crucially by the characteristics of the agreement with the IMF, which would take place in 1Q22.

Key points

• Key points:
• After a Covid-19 outbreak in April and May, infections are decreasing while vaccination is accelerating. 60% of the population would be fully vaccinated by the end of the year, lowering the chances of a new health crisis with economic impact in 2022.
• Primary legislative elections will be held on September 12, while the general election will take place on November 14. The outcome is still very uncertain, since candidates have just been announced and polls show a high proportion of undecided voters.
• Economic activity had a slow start in the 1Q21 and suffered the tightened mobility restrictions during the 2Q21. This led us to revise our 2021 GDP growth downwards to 6.5%. We expect 3.5% growth in 2022, which is mostly explained by the reopening of activities once the pandemic is left behind.
• Inflation remained high in 1H21, in line with our forecast of 50% YoY in 2021. In response, the government decelerated FX depreciation, nearly froze utility prices, and resorted to price and export controls. However, these instruments are proving ineffective to curb inflation. We have raised our inflation forecast for 2022 to 50%, as next year there should be a (partial) correction of (lagged) FX and utility prices. The Central Bank has enough firepower to maintain a depreciation rate below inflation and to keep the interest rates unchanged until the elections.
• The government postponed the Paris Club payment to Mar-22. This reinforces our baseline scenario where an agreement with the IMF is reached by 1Q22. The subsequent economic program should tackle the economy’s main inconsistencies (particularly, the fiscal-monetary imbalances and the FX market).

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