Thursday, May 23, 2024

ECONOMY | 16-04-2024 15:44

IMF improves inflation projection: 150% this year, but 45% in 2025

Latest 'World Economic Outlook' report predicts Argentina’s GDP will contract by 2.8% this. Milei’s "shock plan" will impact economy, arriving hand-in-hand with recession, says Fund.

The International Monetary Fund (IMF) has maintained its forecast for Argentina's economy, predicting that high inflation will continue this year as the economy declines.

The multilateral lender did not change its annual GDP forecast, estimating that the economy will fall by 2.8 percent in 2024.

According to the IMF, inflation will be 149.4 percent in 2024 – 62 points less than recorded in 2023, before slowing considerably to an annual 45 percent in 2025.

The predictions stem from the latest edition of the IMF's World Economic Outlook report, presented on Tuesday in Washington, United States, as part of multilateral lender's spring meetings.

Economy Minister Luis Caputo is currently in the United States with a view to reinforcing bilateral dialogue and moving forward with negotiations of a new agreement including the potential disbursement of a new batch of funds. He is expected to meet Kristalina Georgieva, the IMF managing director who has just secured a new term in office, while in Washington.

Commenting on Argentina, IMF officials catalogued the effects of the measures of President Javier Milei’s government, describing the attempts to combat price increases as “impressive,” while stressing it is a  “long-term” process. 

Fund officials have been supportive of President Milei's attempts to balance the books since he took office last December

“The authorities are implementing an ambitious stabilisation plan to reinstate macroeconomic stability based on a solid fiscal anchor, eliminating any financing by the Central Bank, which led to a very high inflation in previous years,” stated Pierre-Olivier Gourinchas, the IMF's chief economist, at a press conference.

“What we’re seeing is that it’s already having an effect. There is a favourable evolution month after month. The progress has been impressive.”

In keeping with its most recent update, the IMF retained its economic projection for this calendar year. Its projected 2.8 percent is optimistic compared to local analysts. The most recent Central Bank poll of market analysts and banks forecasted a contraction of 3.5 percent in 2024.

Looking ahead, the IMF expects a significant slowdown of consumer price hikes – of more than 100 percentage points. Forecasting growth of five percent, Fund officials see inflation at around 45 percent.

The IMF acknowledges that the contraction of the economy this year is a result of the adjustment measures being taken by Milei’s government, but at the same time it expects a change in the trend for next year.

As for unemployment, the IMF expects it to rise this year to eight percent, to then drop to 7.5 percent in 2025.

Despite these numbers, Gourinchas – a top economic advisor to IMF chief Georgieva – stressed that it is still too early to tell whether the economy “is heading for a ‘U’ or a ‘V’ when it comes to bouncing back. 

"It will take time and require a constant evolution of economic policies. Plenty more needs to be done on many scales. We’re following this situation very closely. The Fund is in close contact with authorities," he said.

However, Gourinchas highlighted that, starting with the orthodox “shock plan” carried out by the La Libertad Avanza administration in place, “authorities have been able to reach a fiscal surplus for the first time in nearly a decade."


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