According to economists at the International Monetary Fund (IMF), the bitter pill Argentines are facing is reducing Latin America's average economic prospects. In its latest annual report of global estimates, the multilateral now reduces its regional gross domestic product (GDP) forecast to 1.9% from an estimated 2.3% in October last year. This would represent a slowdown from the 2.5% increase expected in 2023. According to the agency's forecasts, the regional economy can grow by 2.5% next year.
“The revision of the forecast for 2024 is due to Argentina's negative growth in the context of a significant adjustment of economic policies to restore macroeconomic stability,” said the report published on Tuesday. The South American country has elected a new far-right government that is seeking major changes in economic and financial policies. Argentina is estimated to have contracted by 1.1% in 2023 and by 2.8% this year. “As in other major economies in the region, there are improvements of 0.2 percentage points for Brazil and 0.6 percentage points for Mexico, mainly due to the knock-on effects of stronger than expected domestic demand, which was substantially higher than expected trading partners,” it said in the report. The fund expects growth of 2.7% for Mexico and 1.7% for Brazil this year.
The report has a slightly more optimistic tone than those released since 2020, the year in which the Covid-19 pandemic slowed economic activity and triggered inflation across much of the world. Forecasts suggest global growth of 3.1% in 2024 and 3.2% in 2025, a better forecast than the October 2023 estimate. The fund also asserts that the world is on the path to disinflation, but maintains the growth perspective. “This is due to better-than-expected resilience of the United States and several key emerging and developing economies, as well as fiscal stimulus in China,” the multilateralists point out.
“In any case, the forecasts for 2024-25 are below the historical average of 3.8% (2000-19),” they warn, “given the high interest rates of monetary policy to combat inflation, the withdrawal of fiscal support in one. “An environment of high debt holding back economic activity and low underlying productivity growth.” Global inflation is expected to fall to 5.8% in 2024 and 4.4% in 2025.
The inflation forecast has been revised downwards for both 2024 and 2025 in advanced economies, while it has been revised upwards for 2024 in emerging and developing economies. “Particularly in Argentina, where the realignment of relative prices and the removal of old price controls, the recent devaluation of the currency and its impact on prices are expected to lead to an increase in inflation in the short term,” the report said.
Long-term borrowing costs, measured against the reference interest rate set by central banks, remain high in both industrialized and emerging and developing countries. This is partly because national debt has increased. “Furthermore, we must add that central banks’ decisions on the monetary policy interest rate are increasingly asynchronous. In some countries where inflation is falling – including Brazil and Chile, whose central banks tightened monetary policy earlier than other countries – interest rates have fallen since the second half of 2023,” the report said.
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