Sunday, June 23, 2024

ECONOMY | 09-06-2023 19:44

World Bank, OECD: Argentina's economy faces recession, soaring inflation

Multilateral institutions sound alarm over Argentina’s immediate economic outlook, forecasting that GDP will shrink by at least 1.6% this year.

The World Bank and the Organisation for Economic Cooperation and Development (OECD) have issued stark warnings for Argentina’s immediate economic outlook, warning that a recession lies ahead in the coming months. 

In a new report, the World Bank projected a two-percent decline in gross domestic product in 2023. The main reason for the economic downturn is Argentina’s historic drought, which has slashed soybean and corn harvests and is expected to cause losses equivalent to three percent of GDP. 

The institution also highlighted the impact of Brazil's economic slowdown, Argentina's main trading partner, on commodity exports. Scarcity of foreign currency reserves at the Central Bank and increasing inflation further compound the challenges, it warned.

The OECD's latest report reinforces concerns, with Argentina set for the worst economic performance of all member nations. The organisation forecasts a 1.6 percent contraction in GDP for 2023, which it attributes to the drought and a decline in consumption and investments, exacerbated by political uncertainty surrounding upcoming elections.

Again highlighting the severe drought, the OECD noted the impact of soaring inflation, which reached a 30-year high of 108.8 percent per annum in April and could soar to 148 percent this year, according to a recent Central Bank survey. 

Argentina will return to growth in 2024, recovering 1.1 percent, said the organisation.

Both the OECD and the World Bank emphasised the importance of fiscal discipline and the need for Argentina’s government to adhere to current fiscal targets. 

The OECD noted the efforts of Argentina's Central Bank to curb inflation through interest rate hikes but recommended further increases in response to recent spikes in inflation. 

Limited foreign reserves, stringent monetary restrictions, and large volume of Central Bank bonds in circulation pose risks to the stability of the currency and the ability to meet fiscal goals, it added, cautioning that pressure to increase spending amidst deteriorating economic conditions could further jeopardise planned fiscal adjustments.

Despite the challenges, both institutions highlighted the potential for a swift economic rebound if global demand for Argentine exports increases, leading to higher growth and foreign currency inflows that alleviate pressure on the exchange rate. 

A World Bank spokesperson said that Argentina’s economy is expected to improve the following year, growing “2.3 percent in 2024 as the economy recovers."

The International Monetary Fund currently forecasts little to no growth for Argentina this year, with a rise of just 0.25 percent in GDP.


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