• Mon. Feb 26th, 2024

Government Forecasts Recession Based on Reduced Deficit, Inflation Declines, and Private Credit Collapse


Feb 11, 2024
The Government and Central Bank are discussing recession in light of three economic indicators.

The government became convinced that the economy was entering a recession based on three key factors. These included a reduction in the deficit, signs of a decrease in inflation, and a collapse of private credit. These indicators started to reflect the impact that the shock plan had on consumption, activity, and investment at the beginning of the year.

Inflation has been one of the biggest challenges for the government. When Minister of Economy Luis Caputo reported that inflation was 30% in December, 30% in January, and then 20% in February, he predicted that people would not accept such an increase. However, they are doing so now. The initial shock plan resulted in a big jump in prices and a strong fiscal adjustment, leading prices to begin to decline. Caputo originally expected a 40% inflation in the first quarter, but it ended up being much higher at 65.5%.

Another challenge has been the collapse of peso loans to the private sector. The Central Bank revealed that there was a significant collapse due to factors such as accelerating inflation and negative interest rates policies that led to reduced fixed terms lending by banks. This has had a ripple effect throughout different sectors of the economy, leading to significant drops in construction and automotive production, along with layoffs and suspensions due to diminished sales and commercial debts.

The tire industry and investment have also presented negative trends and considerable declines in activity, reflecting the deepening economic downturn. Economists consulted by the Central Bank expect a contraction in economic growth of 3%, accompanied by an increase in unemployment rates. The concern remains whether the government will be able to lower inflation levels without further devaluation which may lead to accelerating prices if deficits are not reduced.

Despite these challenges, Javier Milei, Minister of Economics promised during his inauguration speech that there is hope for improvement ahead but recent data shows otherwise as there was a 5% year-on-year fall in economic activity in December alone.

In conclusion, despite some progress made by fiscal adjustments earlier this year

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