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IMF Thinks Recession in Argentina Will Be Worse Than Expected

Fund expects economy to contract by 2.6 percent, against the government's 2.4

By | [email protected] | October 9, 2018 11:39am

H1UY4P5hZ_930x525Christine Lagarde, Managing Director of the IMF. Photo via La Clarín.

In a new edition of its World Economic Outlook (WEO) report, the International Monetary Fund (IMF) indicated it expects the Argentine economy to contract by 2.6 percent in 2018 and 1.6 percent in 2019, an estimation that is more pessimistic than the Macri administration’s 2.4 and 0.5 percent, respectively.

The Argentine private sector, on its end, forecast in average that the recession will be somewhat in the middle of figures, with 2.5 percent. But it coincides with the government’s estimate regarding next year’s economic output.

However, the Fund is slightly more optimistic than the Macri administration with respect to inflation in 2019: it predicts a 20.2 percent rate, in contrast with the government’s 23 percent. The private sector’s? 27 percent. Nonetheless, all estimate this year’s rate will be above 40 percent.

The Fund indicated the reasons for its revision were a result of “country specific factors, tighter financial conditions, geopolitical tensions and higher import bills,” as well as “a souring of investor sentiment.” Moreover, ir indicated that Argentina and Turkey were particularly affected by the materialization of “several of the downside risks highlighted in the April 2018 WEO [released right before Argentina’s currency crisis began] such as rising trade barriers and a reversal of capital flows to emerging market economies with weaker external positions.”

Focusing on Argentina in particular, the report also highlighted the negative influence of “stricter financial conditions, along with an internal corruption scandal [the so-called ‘notebooks scandal’] and fiscal austerity measures” that will now be harsher than previously estimated, as a result of the two stand-by agreements signed by the Argentine government and the IMF in June and September.

Moreover, the Fund emphasized on the need to protect the most vulnerable while implementing financial reforms: “[Argentina] must guarantee that the benefits of stronger and sustained growth extend to all sectors of society through the strengthening of the social protection network, even by redesigning welfare programs,” reads a relevant paragraph.

The report was published in the context of the organization’s annual meeting that took place in Indonesia, to which Argentine officials such as Treasury and Finance Minister Nicolás Dujovne and second Vice-President of the Central Bank, Veronica Rappoport, attended.