Argentina Economic Outlook
The economy likely shrank significantly in Q2, buffeted by a destructive drought, hyperinflation, FX restrictions, a plunging peso and rocketing interest rates. GDP has likely continued to fall in Q3 due to the same factors and heightened political uncertainty. Outsider libertarian candidate Javier Milei surprisingly came first in 13 August primary elections for the presidency, followed by the conservative opposition bloc and the ruling Peronist party: The peso plunged following the results amid ensuing political uncertainty. In recent weeks, the government decided to use a USD 7.5 billion disbursement from the IMF to repay part of a currency swap with China, while it also announced a series of handouts for workers and pensioners and promised to exempt millions from income tax in a bid to shore up political support ahead of the 22 October elections.
Inflation dropped to 113.4% in July from 115.6% in June, which had marked the highest rate in the current series. Inflation will surge this year relative to 2022, stoked by a collapsing peso amid monetary financing of the fiscal deficit. Faster-than-expected peso depreciation and fiscal largesse ahead of the October elections are key upside risks.