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Itaú: An Economy With Significant Imbalances

ARGENTINA
  • While there are no certainties about how dollarization program will be implemented and how long it will take, Itaú still expect a sharp depreciation of the currency before the end of the year. Itaú now forecast an official exchange rate of 670 (30% weaker than the end of 2022 in real terms) for year-end 2023, inflation of 200% and a monetary policy rate of 145%, all with risks tilted to the upside.
  • The size of economic imbalances looks challenging for the next administration, with inflation running at 143% Y/y in Oct (annualized quarterly inflation at 255%), a GDP in recession, amid a severe drought.
  • A critical level of international reserves (-USD 10.5 billion of net international reserves) and a wide spread in the parallel exchange rate market (around 150% last Friday), amid an appreciated official exchange rate and tight capital and import controls, also need a solution in the near term. The primary fiscal deficit is expected at 3.5% of GDP for this year, well above the 1.9% of GDP included in the agreement with the IMF.
  • Finally, the Milei administration will be pressed to deliver results considering mid-term congressional elections take place in two years.
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