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BBVA on Argentina: Upgrades 2021 Growth Forecast

ARGENTINA
  • Last week, BBVA upgraded their GDP growth forecast for Argentina in 2021 from 6.5% to 7.5%, due to a lower-than-expected decline in 2Q21. However, economic activity will not be buoyant in the coming quarters, since the economy will have to process the current economic imbalances. They lowered the 2022 GDP growth forecast to 2.3% (previously 3.5%).
  • The government suffered a major defeat in the primary midterm elections, which seems difficult to revert in November's general election. This unexpected outcome triggered tensions within the ruling coalition, which resulted in a cabinet reshuffling.
  • Inflation will remain high in 2021 (50% YoY) and will accelerate to 54% in 2022 (previously: 50%). They assume that there will be an adjustment of the exchange rate and public utility rates in 2022. The monetary overhang will be lower in 2022 and they expect a less expansionary monetary policy (slightly higher interest rates). However, money issuance to finance the Treasury and cover quasi-fiscal deficit will remain high, thus setting a high floor for inflation.
  • Baseline scenario assumes an IMF agreement by March 2022. For the resulting program to be consistent, it should include a progressive correction of the current fiscal, monetary and exchange rate imbalances, adjust relative prices (utility prices and exchange rate), define international reserves targets and economic reforms to restore genuine growth.
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