The International Monetary Fund has slashed its 2024 growth forecast for Argentina, predicting the economy will contract by 2.8 percent while inflation continues to rise.
The estimate, issued in the IMF’s latest World Economic Outlook report, is a huge cut of 5.6 points from the multilateral lender’s last forecast in October, when it predicted 2.8 percent growth for 2024.
The IMF report referenced the impact of the austerity measures of President Javier Milei’s government, which he has introduced to tackle the nation’s ongoing economic crisis.
"The revision of the forecast for 2024 is due to Argentina's negative growth in the context of a significant adjustment of economic policy to restore macroeconomic stability," the IMF said.
Inflation is currently running at more than 210 percent per annum in Argentina, with prices up more than 25 percent last month alone. More than 40 percent of the population lives in poverty, with just over nine percent considered destitute.
The IMF, which estimates GDP contracted by 1.1 percent in 2023, is now forecasting a second straight year of recession.
However, the Fund’s experts forecast that the economy would bounce back in 2025 with GDP growth of five percent, an improvement of 1.7 points from its October forecast.
President Javier Milei has introduced fierce austerity measures since taking office last December in a bid to fix the ongoing crisis. The La Libertad Avanza leader has devalued the peso by more than 50 percent, trimmed state subsidies for fuel and transport, and reduced the number of government ministries by half.
Milei has insisted that the immediate pain these policies are causing will be worth it in the longer term. But many citizens fear his package of deregulation and economic reform will leave them worse-off. Last week saw the first major demonstration against the new government.
In its report, the IMF warned that consumer prices would continue to rise in the short term, though it did not provide an official estimate for the year.
“The realignment of relative prices and elimination of inherited price controls, past currency depreciation and the related pass-through into prices is expected to increase inflation in the near term,” it reads.
In an interview with the Wall Street Journal last week, Milei acknowledged that the impact of his changes may not be felt for “about two years.”
"It is true that there is a warning light, that they say it is difficult to hold out for more than a year," said the president, who declared that he has "no Plan B."
Global outlook
Argentina's economic woes are reflected across the updated forecasts in the IMF report. The Fund's 2024 growth forecast for Latin America and the Caribbean was revised down 0.4 percentage points to 1.9 percent, reflecting "negative growth in Argentina in the context of a significant policy adjustment to restore macroeconomic stability."
The IMF also noted that Argentina's inflationary surge was the main driver pushing up the 2024 inflation outlook for emerging markets and developing economies to 8.1 percent.
During a press conference on Tuesday, IMF chief economist Pierre-Olivier Gourinchas admitted that the Fund’s outlook for Argentina is “a very significant downward adjustment,” but he highlighted that growth would “resume in 2025 at around five percent.”
Despite some challenging forecasts, the overall picture in 2024 looks set to be less gloomy for many countries than it was in 2024: Every country cited in the report save Argentina is set to have positive growth this year.
This is an improvement from 2023 when four out of the 30 economies cited in the report are estimated to have contracted.
Overall, the IMF raised its 2024 global growth forecast to 3.1 percent, citing unexpected resilience in major advanced and emerging market economies around the world, including the United States and China. The updated figure is 0.2 percentage points higher than forecast last October.
"The global economy continues to display remarkable resilience, with inflation declining steadily and growth holding up," said Gourinchas.
The IMF's overall inflation outlook remained unchanged at 5.8 percent for 2024 but that masks a significant underlying shift between richer and poorer countries.
Inflation in advanced economies is now forecast to be 2.6 percent in 2024, down 0.4 percentage points from October, while emerging and developing economies are expected to hit an annual inflation rate of 8.1 percent, up 0.3 percentage points.
"Excluding Argentina, global headline inflation will decline to 4.9 percent this year," Gourinchas said, adding that he expected consumer prices to rise close to 150 percent domestically this calendar year.
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