Argentina’s economy will grow 4.4 percent this year but will suffer a sharp slowdown in 2023, the Organization for Economic Cooperation and Development (OECD) forecast on Tuesday.
Analysts from the group said in a report that a drop in economic activity in the last two quarters of this year would have a knock-on effect for the following year.
They also warned that Argentina’s government will be forced to roll back on spending if it is to comply with the targets outlined in its US$44.5-billion debt repayment programme with the International Monetary Fund.
Despite a likely downturn towards the end of this year, gross domestic product is still expected to rise 4.4 percent, in large part due to an expansion in the first half of the year, the OECD said.
For next year, experts forecast that GDP will rise by just 0.5 percent – way below the two percent predicted in the government's 2023 Budget bill and the current estimate from the IMF.
In practice, if the forecast is correct, it would only be statistical growth based on what is known as the "drag effect," and in practice the day-to-day situation will not result in improvements for the population, the OECD report warned.
"The economy is projected to contract in the third and fourth quarters of 2022, but annual GDP growth in 2022 will nevertheless reach 4.4 percent, before slowing to 0.5 percent in 2023 and then recovering to 1.8 percent in 2024," it said.
The organisation noted that "in a context of high inflation, tighter import restrictions, low international reserves and severely constrained fiscal space, risks remain elevated and investment and private consumption will remain subdued in 2023."
Experts cautioned that "the IMF agreement has significantly reduced near-term macroeconomic policy uncertainty, but the external situation remains fragile.”
It concludes: "High inflation will weigh on private consumption and will take time to recede. Tight capital controls and policy uncertainty are causing investment to fall sharply in the second half of 2022 and their persistence will allow only a modest recovery in 2023 and 2024.”
Meeting existing IMF targets outlined in the restructuring programme will “require further spending restraint,” the report’s authors wrote.
In Brazil, GDP growth is projected at 2.8 percent this year. The OECD also forecast positive growth this year for Chile (1.9 percent), Mexico (2.5 percent) and Colombia (8.1 percent).
World economic growth is slowing due to decades-high inflation, the OECD said in the global section of its report, calling for "essential" further monetary policy tightening and "more targeted" government support.
Global GDP is set to grow 3.1 percent this year – nearly half the rate for last year, according to the body. The slide is due to continue next year, with global growth falling to 2.2 percent before rebounding "to a relatively modest 2.7 percent in 2024", the Paris-based organisation said.
Amid the effects of Russia's war in Ukraine, "growth has lost momentum, high inflation is proving persistent, confidence has weakened, and uncertainty is high," it said in its latest forecasts.
"An end to the war and a just peace for Ukraine would be the most impactful way to improve the global economic outlook," OECD secretary general Mathias Cormann said during a press conference.
OECD chief economist Alvaro Santos Pereira said in the report that the global economy was "reeling from the largest energy crisis since the 1970s."
The energy shock has pushed inflation up "to levels not seen for many decades" and is hitting economic growth around the world, he added.
Inflation had already been on the rise before the conflict due to bottlenecks in the global supply chain after countries emerged from Covid lockdowns.
But the OECD said that inflation was set to reach eight percent in the fourth quarter of this year in the Group of 20 top economies, falling to 5.5 percent in 2023 and 2024.
Cormann said that inflationary pressure was decreasing, but urged central banks to press on with interest rates hikes.
"We do expect inflation to gradually moderate as tighter monetary policy takes effect, demand and energy price pressures diminish over time and transport costs and delivery times continue to normalise," he told reporters.
However, he stressed there remained the possibility that "economic activity may become even weaker if energy prices rise further or if energy disruptions affect gas and electricity markets in Europe and Asia.”
Fighting inflation is a "top policy priority", the OECD said, as soaring prices erode people's purchasing power worldwide.
"Our central scenario is not a global recession but a significant growth slowdown for the world economy in 2023, as well as still high, albeit declining, inflation in many countries," Santos Pereira said.