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News | Question of the Week, WC 25th February
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Question of the Week, WC 25th February

Q: Is the Collapse in the Argentinian Survey and Real Data over?

A: The Argentinian economy collapsed during the currency crisis last year, but survey and hard data are starting to indicate that the recession is finally easing. Still, the economy will remain very weak over the first half of the year, due to the lagged effect of the tightening cycle, low confidence and elevated political uncertainty due to the presidential election. Risks remain skewed to the downside, thanks mainly to high inflation and still-tight credit conditions. The labour market remains under stress and job destruction will continue over the next three-to-six months; the job market lags the economic cycle. Industrial production meanwhile, fell 14.7% year-over-year in December, with activity in key sub-sectors, including manufacturing and construction, still plunging. Other key hard data suggest that Q1’s pace will be grim too.

The good news—relatively—is that the rate of decline of GDP is slowing, at the margin. And key sectors, particularly agriculture, are heading for a solid Q1, helped by benign weather conditions. This has boosted yields for some crops, offsetting weakness in soy production. Elsewhere, short-leading indicators point to better growth in Q2. Gradual disinflation in Q2 and lower interest rates suggest that the pain on the economy as whole will ease. The severity of the recession, tight fiscal and monetary policy, and the stabilization in the ARS since October all are gradually pushing inflation down. Eventually inflation expectations, which still remain uncomfortably high, will decline too. We think the inflation picture will improve substantially this year, laying the ground for faster economic growth and easier monetary policy.

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Andres Abadia

Pantheon Macroeconomics

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Posted: 26th Feb 2019

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