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ECONOMY | 23-11-2023 14:42

Argentina’s economy sputters toward recession as Javier Milei takes reins

Argentina’s economy stalled after an August devaluation of the official peso rate, further llustrating the challenges ahead for the president-elect.

Argentina’s economy stalled after an August devaluation of the official peso rate, illustrating the challenge president-elect Javier Milei will inherit when he takes office next month.

Economic activity was flat in September from a month earlier, according to government data published Wednesday, stronger than the 0.5 percent drop forecast by economists. From a year earlier, the gross domestic product proxy fell 0.7 percent, in line with expectations.

Milei’s upset victory in August’s presidential primary election prompted the incumbent Peronist government to devalue the official currency 18 percent and raise the key interest rate 21 percentage points. The devaluation hit prices hard that month and in September, when monthly inflation hit 12.7 percent — a level not seen since Argentina was exiting hyperinflation in the early 1990s.

"The result signals GDP rose in the third quarter. Argentina would avert a technical recession but is still at risk of a full-year contraction. Milei’s economic shake-up — which will likely include a sharp fiscal adjustment and realignment of prices, the currency and rates — poses additional headwinds to growth in 2024," said Adriana Dupita, Brazil and Argentina economist for Bloomberg.

The libertarian outsider, who won a landslide victory in Sunday’s presidential run-off, will inherit an economy lurching into its sixth recession in a decade and annual consumer price gains surging past 143 percent. He has promised to replace the peso with the US dollar and shut down Argentina’s Central Bank.

Argentina’s GDP slumped 2.8 percent in the second quarter, the deepest decline since the peak of the pandemic in early 2020. A record drought that wiped out US$20 billion of agricultural exports and accelerated food inflation took a heavy toll on the economy. Economists surveyed by the Central Bank see output declining two percent this year and contracting again in 2024.

 

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by Manuela Tobias, Bloomberg

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