Recessionary risks on the rise
Moderate policy changes were made earlier in the year: the peso was devalued, interest rates rose and data reporting was improved. These measures have helped to stabilize foreign exchange reserves and keep capital from flowing out, while cushioning the peso and improving investor confidence. We now expect a contraction in GDP of 1.5% this year, as continued controls and regulations, intrusive government policies and unaddressed macro distortions continue to undermine the limited potential for a recovery. However, renewed uncertainty over policy ahead of next year’s general election raises the risk that Argentina could experience more than one year of contracting activity and high inflation.
The unpredictability of policy remains the most significant barrier to economic progress. Recent moves toward more stable policy have been welcomed, and have helped to assuage concerns. But Argentina needs policy making that can effectively address the systematic imbalances that are continuing to hinder its economic development.
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