The bitter pill that Argentines endure reduces the average economic prospects for Latin America, according to economists from the International Monetary Fund (IMF).
In its most recent annual report with global estimates, the multilateral now reduces its forecast for the regional Gross Domestic Product (GDP) from the 2.3% estimated in October of last year to 1.9%.
This would imply a slowdown in the 2.5% increase that is estimated for 2023. For next year, according to the agency's forecasts, the regional economy can grow by 2.5%.
“The revision of the forecast for 2024 is due to Argentina's negative growth in the context of a significant adjustment of economic policy to restore macroeconomic stability,” says the report published on Tuesday.
The South American country elected a new far-right government that seeks to implement strong changes in economic and fiscal policy.
Argentina is estimated to have contracted 1.1% in 2023 and 2.8% this year.
“As in other major economies in the region, there are improvements of 0.2 percentage points for Brazil and 0.6 percentage points for Mexico, mainly due to the knock-on effects of stronger-than-expected domestic demand and higher higher than expected in the main trading partners,” the report reports.
The Fund expects Mexico to grow 2.7% this year and Brazil 1.7%.
The report has a slightly more optimistic tone than those that have been published since 2020, the year in which the covid-19 pandemic slowed economic activity and triggered inflation in much of the world.
Projections place global growth at 3.1% in 2024 and 3.2% in 2025, a better forecast than the estimate in October 2023. The Fund also assures that the world is on the path to disinflation, but maintains perspectives of growth.
“This is due to greater-than-expected resilience in the United States and several important emerging market and developing economies, as well as fiscal stimulus in China,” the multilateral specialists indicate.
“In any case, the forecasts for 2024–25 are lower than the historical average of 3.8% (2000–19),” they warn, “given the high interest rates of monetary policy to combat inflation, the withdrawal of fiscal support in an environment of heavy debt that slows down economic activity and low underlying productivity growth.”
Global inflation is expected to drop to 5.8% in 2024 and 4.4% in 2025.
The inflation forecast has been revised downwards for both 2024 and 2025 in advanced economies, while it has been revised upwards for 2024 in emerging market and developing economies.
“Especially in Argentina, where the realignment of relative prices and the elimination of old price controls, the latest depreciation of the currency and its pass-through to prices are expected to raise inflation in the short term,” says the report.
Long-term borrowing costs, measured based on the benchmark interest rate defined by central banks, remain high in both advanced and emerging market and developing economies.
This is due, in part, to the fact that public debt has increased.
“To this we must add that the decisions of central banks on the monetary policy rate are increasingly asynchronous.
In some of the countries where inflation is declining – including Brazil and Chile, whose central banks tightened their monetary policy earlier than other countries – interest rates have been falling since the second half of 2023,” the report notes. .
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