Argentina’s economy has emerged from a recession. GDP has managed to return to growth after three quarters of contraction, achieving sufficient growth to recover in three months GDP levels at the end of 2023and all this at the same time that the most aggressive austerity plan in Argentina’s recent history is implemented. Few would have bet that the economy would recover so quickly with such drastic spending cut measures (which reduce aggregate demand). It has been these measures, precisely, that have allowed the ‘other miracle’, which has been to reduce the country risk from 2,100 points a few months ago to 677 points at which it is currently listed, levels that have not been seen since February 2019. At the same time, the peso has stabilized and brings closer the possibility of ending the exchange rate. Despite all these achievements, the economy remains in a fragile position after years of very high inflation, price controls, accumulation of imbalances, public deficits and external debt. Although all of this has begun to be corrected, this is only the beginning of an almost impossible mission that follows a clear roadmap: Javier Milei’s plan.
Daniel Fernández, professor of Economics at the Francisco Marroquín University, explains that “andArgentina’s GDP is growing at the fastest rate since 2020 and is already in the same place as before the Milei government took office. 2024 will most likely end with economic growth, in addition to having avoided hyperinflation and a debt default,” says this expert. Financial Times has published an article headline ‘The Argentine economy emerges from the recession in a milestone for Javier Milei’, explaining how the country has managed to recover amid a plan of strong adjustments, even faster than the Government itself had anticipated.
Fernández goes further and assures that “Argentina will be studied in the following decades as a successful example of ultra-orthodox economic policy“Although it is too early to draw conclusions of this type, the truth is that what Javier Milei has achieved by balancing the accounts, lifting price controls, deregulating the economy and generating appropriate incentives has been remarkable in such a short time. Inflation is now at 2.4% monthly, compared to 25% a few months ago, an achievement that is almost entirely attributed to spending cuts that have allowed the country to achieve several consecutive fiscal surpluses, recovering the economy. trust of the markets.
Argentina’s gross domestic product (GDP) contracted 2.1% in the third quarter of the year compared to the same period in 2023 and has had six quarters of negative interannual rates, official sources reported this Monday.
Yet, he Argentine GDP managed to rebound by 3.9% between July and September in relation to the second quarter of the year after three consecutive quarters of decline. As reported this Monday by the National Institute of Statistics and Censuses (Indec), in the third quarter global supply contracted 4.2% in year-on-year terms, as a result of the 2.1% drop in GDP and the collapse of 11 .7% in imports.
At the same time, global demand fell by 4.2%, with a 16.8% drop in gross fixed capital formation and a 20.1% increase in exports, while private consumption fell by 3. 2% and public consumption fell by 4%. This year, economic activity has been impacted by the effects of the sudden devaluation of the Argentine peso in December 2023, just beginning the Government of Javier Milei, the drastic adjustment program launched by the new Executive and a still very high inflation (166% year-on-year last November).
All of this has also allowed the country risk to fall to minimums not seen since February 2019. Country risk is the same thing that in Europe is known as the risk premium and calculates the difference between the risk-free bond (in America the bond 10-year US bond) and the Argentine bond. The spread has narrowed by about 1,400 points in a few months, going from 2,100 points to the current 677. After knowing the good GDP data, the country risk fell another 33 additional basis points. This has largely been thanks to the stabilization of the peso after cleaning up the central bank’s balance sheet and the imposition of fiscal austerity measures.
What’s more, the peso has experienced something unprecedented, in the ‘black’ or informal market (which paradoxically is the one that reflects the real price of the peso) has come to quote with greater strength for a few hours than the official pesoa true economic contradiction that, however, reveals that Argentines increasingly trust their own currency. Furthermore, since Javier Milei arrived at the Casa Rosada, the prices of Argentine sovereign bonds have tripled, achieving at the same time an intense drop in the interest they pay in the market, as explained by the Financial Times in an extensive report on the economy of Argentina.
Now, Milei’s plan enters the second phase. Although there are still many adjustments to be made, the economy seems to have begun to wake up, as shown by the leading indicators for the last three months, which gives the Government some margin to start lowering taxesalthough with caution, since maintaining the public surplus is essential for the markets to continue placing their trust in Argentine finances. Everything seems to be going together, because even the energy sector is beginning to generate surpluses in Argentina thanks to the awakening of the immense Vaca Muerta oil field, which already produces more than 400,000 barrels of crude oil per day.
Imports rise
According to official data released this Monday, in the third quarter they combined in global supply a growth of 3.9% of GDP compared to the second quarter of 2024 and an increase of 9.1% in imports of goodss and services, which reflects that the disposable income of Argentines is beginning to recover. On the global demand side, there was a 12% improvement in gross fixed capital formation and a 3.2% increase in exports, while private consumption recovered 4.6% and public consumption advanced just 0.7%.
According to the official report released this Monday, of the 16 sectors that make up the GDP, in nine of them an interannual contraction of activity was observed in the third quarter. Among the important sectors, the fall in construction (-14.9%), manufacturing industry (-5.9%) and commerce (-6.1%) stands out.
The positive note was given by the agricultural sector, with a year-on-year jump of 13.2%, although from very depressed bases due to the severe drought that hit this activity last year. In the accumulated of the first three quarters of the year, Argentina’s GDP registered a drop of 3%. According to the latest private projections collected by the Central Bank, Argentina’s GDP would fall by 3% in 2024 as a whole, from a contraction of 1.6% in 2023.
Beyond GDP, country risk and public surpluses, Javier Milei’s Government is deactivating the inflation ‘bomb’. Milei’s strategy to combat inflation has consisted of what he himself calls “use a chainsaw against the State”. This has meant reducing public spending from 44% to 32% of GDP. The biggest cuts were made to pensions, public works, public sector salaries, energy and transportation subsidies, and social programs. At the same time, its Minister of Economy, Luis Caputo, a former Wall Street operator, implemented a complex financial plan to stop the excessive printing of pesos from the Central Bank.
A year after assuming power, Javier Milei seems to be confirming the predictions of those who believed in his ability to transform the Argentine economy and dismantling his critics. After receiving a country on the verge of hyperinflation, Milei has achieved in the first part of its plan reduce the monthly CPI from 26% registered in December of last year to 2.7% in october. The Argentine currency, the peso, which had been branded by Milei as “excrement”, has strengthened significantly against the dollar on the black market over the past six months.
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