- IHS Markit expects Argentina’s economy to enter formal recession as soon as the third quarter of 2018, forecasting GDP growth of just 0.3–0.5% for 2018.
- The government is unlikely to sell its already unpopular deal with the International Monetary Fund politically, if it fails to deliver on economic growth and controlling inflation.
- This will undermine President Mauricio Macri’s popularity ahead of next year’s general election, but a fractured opposition has failed to capitalise on this, reducing the chances of a hard-line Kirchnerist figure gaining power.
Argentina’s economic activity index fell 5.8% in May 2018 versus May 2017, the largest retrenchment since 2009.
On 24 July, Argentina’s National Institute of Statistics and Census (INDEC) reported that the monthly index of economic activity decreased 5.8% in May 2018 year on year (y/y), the largest contraction since 2009. Although this was heavily influenced by the poor performance of the agriculture sector – a severe drought affected soy and maize production – the government is also contending with the legacy of protectionist policies implemented by the Kirchnerist administrations (2003–15). High inflation (running at 29.5% y/y at end-June), a wide fiscal deficit (3.9% of GDP in 2017), a sizeable external deficit, the misalignment of relative prices due to subsidies, and an overvalued local currency all indicate economic disarray.
The government is trying to address its severe macroeconomic imbalances through a Stand-By Arrangement (SBA) with the International Monetary Fund (IMF) that will allow Argentina to borrow up to USD50 billion, which is likely to cover its fiscal gap for the next two years.
Want to read more? For analysis on this article and access to all our insight content, please enquire about our subscription options at ihs.com/contact