Argentina is expected to experience a resurgence in its economy by 2025, following two consecutive years of recession, as outlined in a recent Reuters poll. The government’s “chainsaw” plan aims to reduce state size and foster a recovery led by the private sector. The poll predicts that household consumption will increase, spurred by a decrease in inflation attributed to President Javier Milei’s austerity measures. Concurrently, exports and investment are anticipated to rise as existing regulations are eased. Economists predict a 3.5% growth in the Gross Domestic Product (GDP) for 2025, contrasting sharply with a forecasted decline of 3.7% in 2024 and a 1.6% drop in 2023, signaling a turn towards economic recovery.
Forecasts suggest that the economy will begin to expand in the last quarter of the current year, with growth momentum carrying into 2025, primarily driven by increased private consumption despite stable public expenditure. Juan Barboza from Grupo Mariva noted that energy sector output is already on the upswing and is expected to further replace imports, while other sectors like services and manufacturing will also stabilize. A significant factor in this recovery is the anticipated decline in inflation, which is expected to fall from an alarming 222% in 2024 to around 53% in 2025, following drastic measures taken to correct the peso’s inflated value.
Investment in the energy sector is projected to soar, with estimates reaching $15 billion in 2025 and $16.5 billion in 2026. The anticipated upturn in energy investments is partly attributed to the government’s deregulation efforts, which aim to enhance export capabilities and facilitate companies’ access to essential foreign currency. Nonetheless, challenges loom ahead as Argentina must service bondholder payments amidst limited international reserves. Mauricio Monge of Oxford Economics cautioned that while Argentina could potentially sidestep an IMF intervention in 2025, doing so would significantly deplete vital resources.
Although the current government has made headway on fiscal issues this year, future progress may be stymied by the need for additional fiscal adjustments, particularly in light of upcoming midterm elections. In this context, hopes are pinned on increasing mining export revenues to replenish the central bank’s reserves. Additionally, the local financial landscape has shown improvement, with a decline in the country’s sovereign risk index signaling rising confidence in the government’s fierce cost-control policies.
Argentina’s economy has benefitted from a unique circumstance of increasing U.S. dollar deposits, which stem from a one-time tax amnesty, aiding in the maintenance of a ‘crawling peg’ exchange rate system. This approach, characterized by a 2% monthly depreciation of the currency, has mitigated some economic challenges tied to the nation’s complicated capital control and multiple currency systems. However, there is apprehension about the long-term implications of maintaining such a system, with many investors advocating for President Milei to fulfill campaign promises by allowing a more liberated foreign exchange market.
Ultimately, the sustainability of Argentina’s recovery remains contingent on balancing economic liberalization with necessary fiscal discipline. Economists warn that stifling investment through over-regulation could hinder growth aimed at reversing over a decade of stagnation. Policymakers are thus faced with the delicate task of fostering conditions conducive to investment while navigating the complexities of a high-inflation economy resistant to immediate reforms. The trajectory of Argentina’s economy over the coming years is uncertain, yet signs of potential revival paint a cautiously optimistic picture against a backdrop of socioeconomic turbulence.