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ARGENTINA: Economy Set To Rebound In 2025 Amid Ongoing Reforms

ARGENTINA
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  • The economy looks on course for a sharp rebound this year as President Milei’s reform programme gains further traction. According to the latest BCRA survey, analysts see GDP rising by 4.6% this year, after an austerity-induced recession last year, which is likely to have resulted in a c.2.5% contraction in the economy. That slowdown in the domestic economy has taken the current account back towards balance, while the government also posted its first annual fiscal surplus in 14 years last year.
  • Looking ahead, deregulation minster Sturzenegger recently said that even deeper cuts are planned this year, as the government remains committed to its fiscal balance objective. The sharp fiscal adjustment has also driven a sustained decline of inflation, with the monthly rate moderating from a double-digit pace in early 2024 to 2.7% m/m in December and an expected 2.3% in January, according to Economy Minister Caputo. Annual inflation has fallen from a peak of 289% y/y to 118% in December and is seen falling to 23% by end-2025.
  • That slowdown in inflation has allowed the government to slow the pace of the crawling FX peg deprecation to 1% per month this week, from 2%, and it has committed to eliminating FX and capital controls this year, amid ongoing discussions for a new IMF programme. IMF officials recently completed their latest mission to the country, saying afterwards that the talks were highly constructive and positive. HSBC sees capital controls potentially remaining in place until after the mid-term elections in October, after which FX pressures may build again.
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  • The economy looks on course for a sharp rebound this year as President Milei’s reform programme gains further traction. According to the latest BCRA survey, analysts see GDP rising by 4.6% this year, after an austerity-induced recession last year, which is likely to have resulted in a c.2.5% contraction in the economy. That slowdown in the domestic economy has taken the current account back towards balance, while the government also posted its first annual fiscal surplus in 14 years last year.
  • Looking ahead, deregulation minster Sturzenegger recently said that even deeper cuts are planned this year, as the government remains committed to its fiscal balance objective. The sharp fiscal adjustment has also driven a sustained decline of inflation, with the monthly rate moderating from a double-digit pace in early 2024 to 2.7% m/m in December and an expected 2.3% in January, according to Economy Minister Caputo. Annual inflation has fallen from a peak of 289% y/y to 118% in December and is seen falling to 23% by end-2025.
  • That slowdown in inflation has allowed the government to slow the pace of the crawling FX peg deprecation to 1% per month this week, from 2%, and it has committed to eliminating FX and capital controls this year, amid ongoing discussions for a new IMF programme. IMF officials recently completed their latest mission to the country, saying afterwards that the talks were highly constructive and positive. HSBC sees capital controls potentially remaining in place until after the mid-term elections in October, after which FX pressures may build again.