The International Monetary Fund revised down its growth estimate for Argentina, forecasting South America’s second-largest economy will shrink for two consecutive years as President Javier Milei pushes for a “significant policy adjustment.”
Argentina’s gross domestic product will contract 2.8 percent this year as inflation soars, following a 1.1 percent decline in 2023, according to the IMF’s latest estimates for the global economy published Tuesday. Back in October, the Fund forecast 2.8 percent growth in 2024.
Since taking office in December, Milei has eliminated government subsidies and price controls, announced a 54 percent currency devaluation and put forward plans to shore up public accounts. Thousands swarmed the capital, Buenos Aires, last Wednesday after unions called for a 12-hour strike to protest his austerity measures.
The government’s push to cut down on spending is “absolutely needed” to rein in inflation, which the IMF estimates will slow down to near 150 percent a year by December.
“It’s a very sizeable fiscal adjustment,” IMF chief economist Pierre-Olivier Gourinchas said at a press conference in Johannesburg, South Africa. “The root cause for inflation is that there’s been quite a bit of monetary financing, so it’s very important for government accounts to be consolidated and stabilised.”
Still, Milei’s plan to eliminate the primary budget deficit this year is proving difficult to implement. In a bid to get his package of key reforms approved in Congress, he gave up on hundreds of proposed measures, including plans to increase taxes on exports and to privatise oil company YPF.
Analysts in the most recent survey by Argentina’s central bank expect the economy to shrink 2.6 percent in 2024. Back in November, the Institute of International Finance projected a 1.3 percent contraction this year.
With inflation accelerating in the near term as relative prices realign, Argentina’s decline will also drag on Latin America’s growth during 2024. IMF economists see the region growing just 1.9 percent, down from last year’s 2.5 percent pace. Argentina could revert to growth in 2025, with the fund estimating a five percent expansion.
by María Eloisa Capurro, Bloomberg
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