June 2, 2023

Brighton Journal

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The IMF predicts that Argentina will record 88% inflation and no GDP growth this year.

The IMF expects Argentina’s economy to have higher inflation this year than it recorded in 2022. Reuters

The International Monetary Fund (IMF) has adjusted inflation and economic growth for Argentina this year: it estimates that inflation will reach 88% in 2023, and that GDP will end this year with an improvement of 0.2%. In the latest World Economic Outlook (WEO) report released this Tuesday.

The fund’s economists were blunt: they said inflation in the country would remain at “very high” levels and that the government would have to follow to the letter the plan it signed with the multilateral agency in 2022 to boost expectations. Casa Rosada about the sharp relaxation of the goals of the agreement.

In this way, the company set aside its previous estimates, which expected end-to-end annual inflation of 60% and annual average of 76%. For this last issue, the Monetary Fund is now waiting A CPI of 98.6%, which suggests that the rate of inflation may slow down in the latter part of the year. Staff assured that CPI will be 4% per month by mid-year.

The impact of this Drought And the start of the year with higher-than-expected monthly inflation figures forced it to revise its baseline projections, which would be linked to fiscal deficit and monetary issue targets, which are expressed in pesos and, therefore, strictly Nominally updated.

The new WEO was presented at a press conference hosted by the IMF Chief Economist at 10 a.m. in Argentina, Pierre-Olivier Gourinchas and his collaborators Petya Koeva Brooks and Daniel Leigh.

Before the questions infobae And La Nación, the Gourinchas explained why they lowered the growth forecast and increased the inflation forecast. “The reason we have this downward revision of GDP in 2023 is because we are looking at whether it is (a) transitory event due to the massive drought. We expect 2% growth in 2024.

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“We have seen some improvement in inflation, but challenges have seen us increase it by 60 to 88 percent since the last forecast in January,” the fund’s chief economist said.

Meanwhile, Goa Brooks added about GDP, “We have already seen a significant slowdown in the last quarter of 2022, and inflation at the end of 2022 was 94.8%, and we saw a rebound in January due to prices. of food”.

“The main inflationary pressures are still due to disaggregated inflation expectations. Let’s hope it continues at the highest level. “That’s where the importance of having contractual and prudent monetary and fiscal policies in line with the IMF’s plan comes in,” he emphatically concluded.

Gourinchas confirmed that global inflation will slow this year compared to 2022, and stressed that “many emerging economies are rebounding” despite risks from the recent banking crisis and easing of inflationary pressures. “There is little evidence of wage volatility in most countries; as long as inflation expectations are good, we are not concerned about this phenomenon,” he clarified. At the same time, he pointed out that the recent banking crisis in the US and Europe has increased the outflow of capital from emerging countries and the strengthening of the dollar, if sustained in the coming months, could cause a slight reduction in global GDP. and the credit crunch.

In this sense, he opined that the fiscal consolidation policy would help mitigate the effects of this situation. At the same time, he emphasized the need for continued consolidation of trade integration between countries. Experts also noted the situation in Russia and the United Kingdom. Also, to the complicated sovereign debt situation many poor countries face due to rising interest rates.

In its latest staff report released last week, the IMF had warned of drought, reserve accumulation and lack of inflation. At this last stage, he is “a stance Tight monetary policy to counter high and growing inflationary pressures and support demand for peso-denominated assets”.

“Real policy rates are needed Sufficient height As long as inflation expectations take a clear downward trend, further justification is possible The new rate increases In the event of new inflation shocks and/or intensification of exchange rate pressures,” the firm noted.

The acceleration of inflation projected by the IMF, in an electoral context, could affect the feasibility of implementing the plan. “There could be high inflation and very low growth Incites social discontent and undermine support for the program, especially given the election cycle. In this context, contingency planning and proactive policy making are essential to improve the likelihood of project success, and may require Additional hardening Principles and adjustment of exchange policies”, funds are expected.

Index of IMF Economic Estimates, according to WEO published this Tuesday
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“Addressing rising inflation will be more difficult due to high deflation, weak BCRA balance sheet (reflecting past liquidity injections), demand for relative price adjustments and external challenges posed by drought. Hence, inflation is projected to ease gradually (to 6% per month in the first quarter of 2023) top About 4% By mid-2023), particularly with large upside risks persisting, even with modest demand for pesos”, estimated Washington.

The central bank showed in its latest release that market consensus, which shows the REM on a monthly basis, is that participants in that survey expect price increases. 110% For the full year 2023, this represents a revision of 10 percentage points relative to the previous month.

As for the estimate of gross output variation for this year, the IMF outlook of the economy growing by 0.2% is still far off. A decline of 2.7% Market consensus for 2023 is expected as a result of strong impact of drought. It is not yet known whether the government will officially verify the recalculation of inflation and GDP made by the IMF.

The IMF opened the door in its latest statement Recalculation of projections Basis of current program with Argentina. Assumptions on which the organization’s technical team worked At the end of JanuaryTherefore, the duration of the drought, more severe and extensive than expected, forced a new revision of the forecasts.

The IMF estimates that adverse climate events could reflect a cost to the public accounts of approx $5 billion, One in three What the government and the local private sector expect.

In a statement he issued with the new Global Economic OutlookThe IMF said, “With the cumulative effects of the adverse impacts of the past three years, in particular, the Covid-19 pandemic and Russia’s invasion of Ukraine, the global economy is once again at a time of uncertainty. In unexpected ways.”

Sergio Massa in his last meeting with Gita Gopinath, Deputy Director of the International Monetary Fund
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“Spurred by high demand, persistent supply disruptions and rising commodity prices, Inflation hit a multi-decade high In many economies last year, central banks tightened aggressively to return to target and stabilize inflation expectations,” the IMF continued.

“Though telegraphed by central banks, the Rapidly rising rates “An expected slowdown in interest rates and economic activity, driving inflation on a downward path, supervisory and regulatory gaps, and the materialization of bank-specific risks contributed to tensions in some parts of the financial sector,” he warned. Silicon Valley BankA month ago.

“Banks’ generally strong liquidity and capital positions suggested they were able to absorb the effects of monetary policy tightening and adjust smoothly. However, some financial institutions with business models that rely heavily on the persistence of very low nominal interest rates in recent years Great tensionBecause they are not ready or unable to adapt to the rapid rate of increase in rates”, the IMF continued.

“The fog surrounding the global economic outlook has thickened as volatility in financial markets has increased recently and many indicators are pointing in different directions. Uncertainty is highAnd the balance of risks has shifted firmly to the downside until the financial sector remains volatile,” the agency said.

IMF’s global growth forecast for this year 2.8%, which is 0.1 points lower than the last report since January. In this context, it improved from 1.4% 1.6% Calculation of growth AmericaThat was constant European union And this China (5.2%), ratio India (5.9%) and emerging economies in general. For Latin America, the outlook was 1.8% to 1.6%, a Brazil It grows 0.9% Instead of the 1.2% expected by the IMF earlier in the year.

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