Double-digit inflation is on track to slow, but there are latent risks, British bank warns

Double-digit inflation is on track to slow, but there are latent risks, British bank warns

The British bank Barclaysprojects a slowing inflation, primary surplus and greater reserve accumulation but governance risks persist.

In fact, the entity considered that the macroeconomic measures implemented by President Javier Milei are “in the right direction,” but warned that his administration still faces “elevated political risks.”

They also assured that macro indicators “remain solid.” They pointed out, in this regard, fiscal results and the accumulation of reserves by the Central Bank.

Regarding inflation, they project that “it will possibly reach single digits at the end of the second quarter or early in the third quarter of 2024, once the effect of the tariff increases wears off.”

“We are optimistic about the short-term dynamics of public finances, reserves and inflation. The cost is a deep recession and risks to governability,” they warned in a report published on Friday.

Political risks: what they signal from outside

The British bank Barclayswarns that despite the economic results, “the growing conflict between the Government and the opposition has recently de-escalated.”

As for the May Pact and the recent meeting with governors stated that “The Government buys time and the door is reopened to the approval of key tax legislation.”

If risks to governability persist and increase in the second quarter, “the biggest risk is not a delay in reforms, but a deeper political crisis,” they said, adding: “For that to happen, the crisis would have to be triggered by an economic crisis, and not the other way around“.

Fiscal consolidation

Barclays expects fiscal results “to worsen compared to the global balance in January, but we continue to forecast a primary surplus of 0-0.5% of GDP in 2024, compared to a deficit of 2.9% in 2023.”

“The Government is modifying its fiscal consolidation strategy to make it more sustainable in the medium term, since the fiscal results published in January come with some warnings,” they warned.

“They have gone up energy rateswhich will come into full force in March”, they stressed and Barclays pointed out that the cost “it is a deep recession and a rapid increase in poverty as real incomes decline.”

Therefore, the report anticipated that “The Government will have to choose between the speed with which inflation decreases, the depth of the recession and the pace of reserve accumulation.”

Source: Ambito

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