Argentina’s economy will teeter on the edge of a deeper crisis in the run up to October’s presidential vote as growing market anxiety adds to a harmful mix of drought-induced recession and skyrocketing inflation, a Reuters poll showed.
A flight to the safe-haven U.S. dollar sped up this week after the failure of stopgap efforts to bolster exhausted international reserves rekindled fears about a possible devaluation of the heavily-regulated official exchange rate.
Economic activity is set to contract 2.3% this year, the worst performance among the Group of 20 countries, with consumer prices expected to soar more than 100%, according to median estimates from 32 economists polled April 10-19.
Pointing to an increasingly negative outlook, the number of recession forecasts escalated to 27 of 32 respondents from just 7 of 23 in January. Views ranged from 1.1% growth to a slump of 4.5% in 2023.
“The situation is very complicated but if the government collaborates with the likely winners of the [presidential] primaries, the economy will undergo an orderly transition,” said Andres Borenstein, an economist at Econviews consultancy.
“However, the transition will be difficult if the government, which is weak and unable to implement any stabilization plans, does not collaborate following the primaries.”
The date is yet to be confirmed for votes to decide party candidates. In the past, the naming of candidates has preceded big financial crashes weeks before general elections. President Alberto Fernandez and other Peronists trail opposition candidates in voter surveys.
Earlier this month the International Monetary Fund gave Argentina a break by easing targets in its $44 billion loan deal, a decision criticized by some Wall Street analysts who think the fund is being lenient with the South American country.
The haemorrhage of the IMF’s aid is raising fears of a potential devaluation that would sink Latin America’s No. 3 economy into a crisis comparable to the chaotic periods of 1989-1990 and 2001-2002.
Conditions are already extremely tough following years of runaway inflation that has pushed family budgets to the limit. Social protests and homeless people sleeping on sidewalks are now a common sight in Buenos Aires.
Despite facing a much better outlook, the economies of Brazil and Mexico – the region’s No. 1 and No. 2, respectively – are not exempt from problems, as growth cools and cost of living pains remain.
Brazilian gross domestic product is forecast to expand 0.9% this year and 1.5% in 2024, implying a net downgrade for the two-year horizon against expected growth rates of 0.8% and 1.9% in January’s survey.
A recent appreciation of the country’s currency is having some negative effects, by making Brazil’s exports more expensive and leading to bigger current account deficits that weigh on the economy.
For Mexico, growth prospects were slightly upgraded to 1.5% this year and 1.6% in 2024 from 1.0% and 1.8% in January – still well below the government’s more optimistic scenario of a 3.0% expansion.