“There is going to be a stagflationbecause when the fiscal reorganization is carried out, it will have a negative impact on the economic activity “, he assured Javier Milei, who also estimated a period of between 18 and 24 months to end inflation. Different economists agree on the diagnosis of the president-elect, pointing out that for next year it is estimated a drop in economic activity with high inflation. What, by definition, is known as “stagflation”.
“The Argentine economy has been going through a process of stagflation since 2011. GDP per capita when this year closes will have fallen between 10 and 15% in that period. With inflation that has grown steadily, especially in recent years. That is to say, it is nothing new: what we hope is for this process to be accentuated,” summarized Santiago Manoukian, head of Research at Ecolatina.
The depth of the fall, as well as the time it will take for activity to recover, will depend on the measures adopted by the new Government. In any case, according to Milei’s first definitions, analysts foresee – at least – a complex first semester, with a drop in consumption, job creation and investment. The recovery of agriculture and the energy sector could act as a counterweight.
In any case, as Claudio Caprarulo, director at Analytica, pointed out, “It still remains to be seen beyond the discursive what measures Milei is going to carry out and in what way.” “Thereforeit is difficult to estimate the magnitude of the recession that lies ahead and its duration. The timing will also depend on the success and sustainability of your policies. What we do already discount is a drop in the level of activity, generated by less public spending and the drop in income and employment,” he summarized.
A complex scenario
“Indeed, we project a year of stagflation. A recessionary year with high inflation. An inflation that will tend to accelerate next year, as a result of the correction of relative prices that the next Government will carry out and the fiscal adjustment. The correction of relative prices will mainly focus on public service rates, regulated prices and the official exchange rate. That, as a result of inflationary acceleration, will have a negative impact on real household income and with it private consumption, which represents close to 70% of GDP”Manoukian analyzed.
In this way, the Ecolatina economist estimates “a very complex first part of the year in socioeconomic terms that, eventually, If the stabilization proposed by the incoming Government is successful, it could lead to a second part of 2024 with a relative improvement compared to the first part.”
These recessive effects, however, “will be offset by some positive factors.” “As the rebound of the agricultural harvest, based on a favorable climate. And a reversal of the energy trade deficit, which would go from negative to positive territory. Tourism could also continue to play in its favor and the knowledge economy sector could also improve,” said Manoukian.
In that sense, the Ecolatina economist concluded that “Economic activity will have a lot of sectoral heterogeneity next yearprecisely because sectors oriented to the external market can better navigate the economic recession and try in some way to compensate for the rest of the recessionary effects on activity and employment.”
An uncertain rebound
Along the same lines, Sergio Chouza, director of the Sarandí consulting firm, said: “Next year is going to be a very restrictive year in terms of aggregate demand. The different components are going to shrink, both consumption, private investment and public spending, are going to have a contractionary dynamic in the first part of next year. And, furthermore, the public sector, depending on the dynamics of spending, will contribute to deepening this recessive pattern, instead of cushioning it.”
“I think it will depend on the magnitude and volume, on scale, in terms of how much it actually ends up influencing production levels. And the extension: how long it ends up lasting. If it can be limited to one semester and we emerge with a V-shaped recovery, or if it ends up looking more like a U-shape, where the decline lasts throughout 2024: this is a scenario that we cannot rule out today,” remarked Chouza, who added: “There are many questions for next year. What is certain is that it will be a year of fall in the levels of consolidated activity, possibly a fall in employment, in the generation of jobs and with high inflation.”
Martín Kalos, director of EPyCA Consultores, also mentioned the rebound that “agri-food” activity will have, with a campaign with less drought, and greater movement throughout the entire sector.
“We also know that there has to be some kind of stabilization plan for the economy or else we will see even greater deterioration. Either scenario contracts activity,” said Kalos, who concluded: “But we will have a very bad first half of 2024, with acceleration of inflation and economic contraction. And the question is whether the second semester is going to be better or will it continue to be just as bad. Because that second semester is where we could have better results, if things are done well. Today we have no guarantee that things will be done well, because we still lack many definitions and details of what economic plan is going to be applied.”
Source: Ambito
