The government recently became convinced that the economy was entering a recession, based on three key factors. First, there was a reduction in the deficit, which signaled that consumption and investment were decreasing. Second, inflation began to decline after an initial shock plan that resulted in a big jump in prices. Thirdly, there was a collapse of private credit due to factors such as high inflation and negative rates policies.
The Minister of Economy, Luis Caputo, had initially predicted that inflation would fall from 30% in December to 20% in February. However, it ended up being much lower at 65.5%. This significant drop in prices was attributed to the shock plan’s impact on consumption and activity. Caputo had originally expected a 40% inflation rate in the first quarter but was surprised by how low it ended up being.
Javier Milei, Minister of Economics, had also noted during his inauguration speech that challenging times were ahead but hoped for improvement. However, recent data showed otherwise as there was a 5% year-on-year fall in economic activity in December. Additionally, there were significant drops in construction and automotive production, along with layoffs and suspensions due to diminished sales and commercial debts.
Different sectors such as the tire industry and investment also presented negative trends and considerable declines in activity. The tire industry saw a decline of over 18%, while investment decreased by over 20%. These declines reflected the deepening economic downturn that has affected many sectors of the country’s economy.
Economists consulted by the Central Bank expect a contraction of 3% accompanied by an increase in unemployment due to these negative trends.
The concern remains whether the government will be able to lower inflation while maintaining its commitment to reducing deficits without resorting to another devaluation further accelerating prices if it is not reduced.
In conclusion, the government’s decision to adopt shock plans has resulted in significant changes affecting various sectors of Argentina’s economy. While some aspects have been positive like reducing inflation rates significantly since last year; others have been negative like drops in economic activity and employment rates.
It remains uncertain whether these changes will lead to long-term improvements or result only temporary fixes before another recession hits again. Only time will tell if these measures taken by the government can help restore stability and growth back into this struggling economy once again or not