Policy mistakes and a severe draught worsen economic projections
The trends of the main indicators of the economy for 2023 and the projections under a best-case scenario in 2024 and 2025 continue to be those described in our January 10, 2023 forecast. However, as we expected, the government has made no progress in reducing fiscal imbalances or relative price distortions, and policy mistakes and exogenous shocks have worsened our base case for current and future perspectives.
The proposals made by the main presidential candidates of the opposition about possible changes in the organization of the economy, monetary reforms, and a complete elimination of the fiscal deficit are helping to reduce the risk of hyperinflation. But at the same time, the presence of strong organized groups, the beneficiaries of the social and economic subsidies that have become a significant proportion of government spending and the ultimate cause of the large fiscal deficits, is feeding the skepticism of economic agents about the viability of a speedy process of reforms and a successful stabilization.
For this reason, we continue to predict that in terms of inflation and growth, 2024 will be not very different from 2023, even assuming that the new government will be formed by a coalition of parties that are now in the opposition. The big difference will show up in terms of the organizational and micro-economic reforms that might emerge from the removal of exchange and price controls, the elimination of subsidies, the privatization of companies that were nationalized during the Kirchnerist governments, and the reform of the monetary system to reduce monetary emission. The possibility of sharp disinflation and a renewal of sustainable growth could start in 2025.
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