As happens every end of the quarter, IMF technicians make an evaluation of the state of compliance with the macroeconomic goals agreed upon in the loan agreement of facilities extended to Argentina, and present a detailed report on their projections of aggregate activity (GDP and global demand) for the rest of the year and the following ones.
“The baseline outlook has been revised slightly to reflect recent developments and policy actions taken. Economic activity and demand are expected to contract more sharply in 2024, given the carryover of lower growth in the fourth quarter of 2023 and the greater impact of the anticipated fiscal tightening during the first quarter of 2024. Meanwhile, “It is expected that inflation will fall somewhat faster, supported by refinements in the monetary and exchange policy framework and recovery of demand for pesos from historically low levels,” the IMF technicians based the changes in the projections for the current year.
Thus, for the IMF, the economy will contract by 3.5% in 2024 (from 2.75% it predicted three months earlier), “in line with a deeper contraction in non-agricultural production (5% year-on-year), but with a recovery from the end of 2024, as the headwinds from the initial fiscal tightening fade, the beginning of the recovery of wages in real terms and consumer and investor confidence strengthens.”
The agency’s technicians believe that the recovery will be supported by a rebound in demand, including private investment, encouraged by the adoption of market-oriented reforms, following the approval of the Ley Bases and the Fiscal Package by the lower house.
According to IMF projections, real GDP growth will rebound to around 5% next year, and “will converge to potential in the medium term.”
In this way, the organization establishes that the downward correction for 2024 does not imply an “exhaustion” of the adjustment plan of President Milei’s government, but simply the underestimation of the initial effect of the measures aimed at cleaning up public finances, the balance sheet of the BCRA, and the inherited exchange rate lag on the non-agricultural real economy by 0.5% of GDP.
Inflation is expected to fall somewhat faster, supported by refinements in the monetary and exchange policy framework and recovery in demand for pesos (IMF)
If the activity level of 2022 is taken as a base of 100, it is noted that the GDP fell to 98.4 in 2023 and will decrease to 95 on the average for the current year, to recover to 99.7 points the following year.
Clearly, on the demand side, the sector most affected by the new economic policy aimed at demonstrating that the slowdown in inflation will be the main driver of aggregate recovery is consumption by the private sector as a whole, since IMF technicians predict that from a base of 100 in 2022 and rising to 101 the following year, it will contract to 94.1 in the current year and rise to 97.8 units next year.
Public sector consumption is expected to follow a similar path, but with a more pronounced downward slope in 2024, and a weaker recovery in 2025, which will place it almost 16 percentage points lower than three years earlier.
On the contrary, the variable that will be more dynamic in relative terms, although in absolute values it will maintain a low performance, is the gross domestic fixed investment, apparently due to the effect of the notable delay of the Legislative Branch in approving the Law on Bases and Fiscal Package , despite the fact that the focus of the reforms is on the deregulation of private activity and the incentive for the entry of capital to boost the productive process, particularly in the energy, mining and high-tech industries.
IMF technicians expect that “the external current account balance will move from a deficit of 3.4% of GDP in 2023 to a surplus of 0.6% of GDP this year, supported by the recovery of agricultural exports after the drought of the previous year and the compression of demand induced by budgetary policies.”
Thus, after total exports fell 6.7% in constant pesos in the last year, for the current year the IMF foresees an increase of 21.7% in 2024 and 4.7% the following year. If this forecast is confirmed, from a base level of 100 in 2022, and drops to 93.3 points in 2023, it is estimated that it will rise to 113.5 this year and 118.7 next year.
After total exports fell 6.7% in constant pesos in the last year, for the current year the IMF forecasts an increase of 21.7% in 2024 and 4.7% the next
“Restrictive policies and a competitive real exchange rate will support external surpluses in the medium term, with a gradual recovery in imports that will be more than offset by structural improvements in the energy and mining balance and a rebound in the growth of export volumes as a result of ongoing structural reforms,” the experts from the multilateral credit agency point out.
Net international reserves are projected to increase by USD 7 billion this year, unchanged from the last review, as the current account balance is expected to be somewhat lower than planned (due to weak export volumes of agricultural products and the terms of trade) will be offset by higher net capital inflows, including those from efforts to address foreign exchange over-indebtedness resulting from previous delays in the payment of imports and dividends.
“Reserve coverage is expected to continue to improve over the medium term, in line with renewed access to international capital markets by the end of 2025 and a gradual increase in foreign direct investment as structural reforms bear fruit.”
Reserve coverage is expected to continue to improve over the medium term, in line with renewed access to international capital markets by the end of 2025 and a gradual increase in foreign direct investment (IMF).
In this section on the performance of macroeconomic variables, the IMF concludes that “The twin fiscal and external surpluses projected (and generally unchanged) in the medium term, supported by restrictive policies, productivity increases and structural improvements in the energy balance, will guarantee the sustainability of public debt and allow a gradual liquidation of financial commitments, based on better conditions and access to international capital markets.”
The economy’s savings rate, which had fallen to 15.7% of GDP in 2023 from 17.2% the previous year, is estimated to rise to 17.3% in 2024 and to 18.6% of GDP next year. If 2022, prior to the “platita plan”, is taken as a base 100, the savings rate rose to 91.3 points in 2023, would recover in 2024 to 100.6 units and would rise next year to 108.1 points.
Meanwhile, the fixed gross investment rate that came from a boost of 17.9% of GDP in 2022 and 21.2% the following year -exclusively due to the improvement in the contribution of the private sector- is expected to fall to the range of 16.7% in 2024 and partially recover next year. With a base of 100 in 2022 the IBF in that range advanced to 118.4 points last year, but it collapses in the current to 93.3 units in 2024 and would rebound moderately to 100.6 next year.
Such “pruning” of the capital expenditure of the Central Administration, due to the paralysis of most of the public works financed with transfers to provinces due to the minimum degree of execution, was one of the policies that underpinned the consolidation of public finances in the first months of the current year. The IMF estimates that this result will be consolidated.
Not only that, the recovery of the fiscal surplus and the fact that the National Treasury does not need spurious financing from the Central Bank led the IMF to predict that the average inflation rate, which would accelerate in 2024 to 232.8%, from 133.5% in 2024, would ease next year to 61.2 percent.
If these projections are confirmed, for the second consecutive year, with the government of Javier Mileithere will be an excess of savings over investment equivalent to 0.6 percentage points of GDP, in contrast to negative gaps of 0.7% of GDP in 2022 and 3.3% in the last year of the presidency of Alberto Fernandez.
IMF technicians collected data from local private consultants that led them to expect a pace of GDP recovery in 2025 that would allow them to neutralize the loss they have experienced since 2023.
But the most relevant thing is that after a very contractive start to the year that extended into this second quarter that is ending, but noticeably more attenuated and that completes an almost uninterrupted cycle of 18 months of decline (11 under the last government and 7 under the current one), the IMF technicians collected data from local private consultants that led them to expect a pace of GDP recovery in 2025 that would allow them to neutralize the loss that occurred in 2023 and that was accentuated in the current year.
