What does the future hold for Argentina’s economy under Milei?

What does the future hold for Argentina’s economy under Milei?

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Learn more about Argentina’s GDP growth forecast with Focus Economics. Explore the economic crossroads as Argentina eagerly anticipates the presidency of Javier Milei, set to take office on December 10. In this insight piece we delve into the potential impact of Milei’s ambitious policies on indicators such as inflation, exchange rates, and the overall trajectory of Argentina’s economy.

Economic conditions to worsen in the near term:

President-elect Milei seems intent on moving forward with sizable, front-loaded fiscal consolidation, the removal of capital and exchange rate controls, and privatizations once he assumes office on 10 December. These measures will lead to a surge in Argentina’s inflation rate and a deepening economic contraction in the coming quarters, with social opposition to the government’s measures further disrupting economic activity. Our Consensus is for inflation to peak at 260% in Q2 2024, and for the economy to shrink year on year until Q4.  You can explore the current inflation rate in Argentina using our expert reports.

Dollarization on pause:

Given Milei’s La Libertad Avanza party lacks a majority in either house of Congress, dollarization appears to be off the table in the near term; indeed, Milei has pointedly stopped mentioning the reform in recent public appearances. Even his more modest measures to rein in public spending and remove capital and FX controls could meet congressional opposition; in the Senate, the combination of La Libertad Avanza and the center-right Together for Change party will still fall short of a majority, necessitating negotiations with the Peronists or other smaller political groupings. 

Argentina’s economy could see brighter long-term prospects:

Assuming Milei is able to unify the myriad exchange rates, streamline the state, remove economic distortions, privatize stodgy state firms and maintain social stability—a big if—Argentina could undergo rapid growth from 2025 onwards as inflation and interest rates come down and private investment surges. However, even were the economy to temporarily recover post-2024, Argentina’s recent history should make one thing clear: Beware of false dawns. 

Insights from our Analyst Network

On the IMF deal, Itaú Unibanco analysts said:

The next administration will likely negotiate a new program with the IMF, given that all quantitative targets set for 2023 have been missed. The IMF will likely request a weaker exchange rate, considering the deterioration in the balance of payments […] All in, we maintain our forecast of a nominal exchange rate of ARS 1,550/USD for December 2024 and inflation of 150% yoy (with a likely peak in the first half of 2024), reflecting the pass-through effect of the expected devaluation of the currency and the correction of energy, transport and fuel tariffs, among others.”  

On the fiscal stance, Goldman Sachs’ Sergio Armella said: 

“Weak fiscal fundamentals are at the core of Argentina’s macroeconomic problems. […] Once Mr. Milei takes office on December 10, we would expect the new President to present an amendment to the 2024 budget plan. The program with the IMF calls for a deficit target of 0.9% of GDP next year. However, in our view, moving to a primary surplus should be one of the cornerstones of a macroeconomic stabilization plan in Argentina.” 

Our latest analysis

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Download our latest special report on the outlook for Argentina’s economy in the wake of the recent election victory for libertarian economist Javier Milei. 

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