Argentina’s worst drought on record is taking a more severe-than-expected toll on growth, but food prices will be affected only temporarily, according to the International Monetary Fund.
“The more data we see, the more serious that shock seems to be on the country,” Nigel Chalk, acting director for the Western Hemisphere at the Fund, said in an interview on Thursday.
IMF officials slashed their 2023 growth forecast for Argentina to 0.2 percent, down from two percent previously. They still remain more optimistic than most private economists in Buenos Aires, who see gross domestic product contracting four percent this year.
Chalk said the Fund’s estimates published this week “are based on information we had three to four weeks ago,” but the full impact of the drought is yet to be seen. “There’s a lot of uncertainty and it’s moving really fast.”
A revision of growth estimates is likely during the fifth review of Argentina’s US$44-billion programme with the Fund.
Though the full impact of the drought is still “very difficult” to predict, the pace of rising costs of food to consumers is expected to slow in the coming months.
“We shouldn’t see continued rapid increases in food prices,” Chalk said, “unless the drought gets sequentially worse.” Other one-time drivers of inflation include the end of some subsidies associated with the IMF programme itself.
Argentina’s drought is accelerating increases to consumer prices in the run-up to the October presidential election. Exports are poised to plummet, with almost half the soy crop ruined. Still, the fund sees inflation easing to 80 percent this year in Argentina, below the current 103 percent annual rate.
“We do feel that the month-on-month inflation will come down towards the end of the year,” Chalk said. “The economy is slowing, which will mean less demand pressures.”
by María Eloisa Capurro & Leda Alvim, Bloomberg