Inflation, dollar growth and are the economic challenges for the rest of the year

The second semester begins with the same challenges with which the year started. A survey demonstrated by PROFILE among the main market consultants will reveal coincidences that there will be high inflation even if it slows down and a rise in the official exchange rate. Economists of different orientations they foresee a rise in prices close to 140% per yearque the official dollar will cost $470 at the end of 2023 and a year in which the GDP will have a disappointing performance with a fall of close to 3%. Tensions at the end of the government and for what will come in 2024.

Wages increased but lost against inflation in April

After the first half of the year, for the second semester several economic fronts are opening up for the Government that, in the midst of the elections and with Sergio Massa in a double role (Minister of Economy and presidential candidate) who will seek to resolve or at least soften their negative effects in order to be more competitive at the polls.

PROFILE carried out a survey among different economists belonging to the private consultancies most consulted by the market on the main keys for the remainder of 2023. From this survey it emerged that they will maintain a certain exchange rate peace and with that ensure that inflation does not accelerate again, the renegotiation with the International Monetary Fund that will mark the field in terms of reserves and fiscal deficit, and prevent activity from suffering as much as possible.

June inflation would be below 7%

inflation

While waiting for the official act of June to be known, which INDEC will announce on the 13th of this month, and which private estimates foresee will be slightly below 7%, the first semester would close in the order of fifty%.

“The monetary issue is ‘hidden’ among remunerated liabilities, which are growing exponentially and already represent 270% of the monetary base. This has a negative impact on inflation expectations, since it implies a possible monetary issue in the future,” explained Lautaro Moschet, economist at the Libertad y Progreso Foundation.

“Given this outlook, we expect inflation to continue rising and close 2023 at around 140%, with monthly rates that will have a minimum of 7%.”

For her part, Soledad Pérez Duhalde, Abeceb’s director of operations, said that inflation can drop one point in a month but if it “averages 7% from July to December, you end the year at 131%, and in case you have a 8% monthly average in 2023 would culminate in the order of 150%. I think we will be between those values, around 140%”.

GDP grew 1.3% year-on-year in the first quarter

Fiscal deficit

In turn, of the new agreement reached with the international organization, another item that should be recalibrated is the fiscal deficit target, which was 1.9% of GDP at the end of the year.

According to Ecolatina calculations, the accumulated primary red so far in 2023 is close to $1.27 trillion, which represents 0.7% of GDP. Thus, the Government failed to meet the goal agreed with the IMF for the first semester for $87 billion.

“The latter implies that it would be necessary to show a primary surplus in June to be able to meet what was originally planned, an extremely complex challenge given the seasonality of public spending and the expected drop in income as a result of the drought,” said Santiago Manoukian, economic adviser. from Ecolatina.

It’s the economy, it’s…

Going forward, the outlook is not encouraging. If income has been decreasing in real terms as up to now and spending cuts continue at the same pace as seen during this part of the year, it will be difficult to reach the initial objective of 1.9% of GDP of the goal established with the Fund Monetary and that is under review.

“It is likely to be at a value between 2.5% and 3% of GDP. Although attempts at “fiscal efforts” were seen this past year, the drop in revenue had a strong impact on the primary result. It is unlikely that we will be able to meet the expectations that the Fund had and it will have to be a focus between now and the next few months in order to, at least, change the predisposition shown by the Government in terms of this goal. To this must be added the electoral process that runs counter to this objective, a real reduction in the fiscal deficit,” explained Francisco Ritorto, an economist at ACM.

And he added: “In terms of public debt, with the latest tenders it seems that the most important maturities managed to be postponed to next year. So we can say that in the second semester this problem would come to a secondary level”.

economic activity

Regarding this aspect, the economy is expected to end the year in recession. The Monthly Estimator of Economic Activity (EMAE) fell by 1.9% in April compared to March. The index is now at a 1.4% drop from the 2022 average.

For María Castiglioni, C&T economist, “probably the year will finally close with less recession than we thought some time ago, we now have a forecast of more than 3% drop for all of 2023, but it was more negative some time ago, above all because of the positive drag effect that it left last year”.

This means that the EMAE should experience an additional fall of between 1.5 and 2% in the rest of the year.

Dollars

Another challenge that the economic team has is to achieve pax cambiaria, trying to keep the market calm given its policy of maintaining a backward exchange rate.

“Given this context, any shock in political matters that generates a crisis of confidence and a sharp drop in demand for the peso will impact the exchange market,” said Natalia Motyl, an economist at NM.

And he concluded: “For the official dollar, which is going to have to get closer to what the inflation numbers are, it is going to be totally unsustainable, which is still behind, it is going to be around 470 pesos and the blue at $800 in December.”

Travel a mission to the IMF

The technical delegation of the Ministry of Economy will set up a trip to the United States next Wednesday night, with the aim of closing the renegotiation with the IMF and getting the necessary disbursements in advance to prop up the reserves. The mission established that for now Minister Sergio Massa will not be part of the delegation, which will be headed by Deputy Minister Gabriel Rubinstein and the head of advisers for that portfolio, Leonardo Madcur.

From the IMF they affirmed in a statement that “they will continue to advance in their joint work in the coming days”, to agree on “the fifth review of the program”.

The Government’s objective is to obtain some US$ 10 billion, higher than the 4 thousand that are foreseen within the existing agreement.