Government Convinced of Economic Recession Amid Dismal Data: 65.5% Inflation and 5% Fall in Economic Activity

The Government and Central Bank are discussing recession in light of three economic indicators.

According to recent data, the government has become convinced that the economy is on track for a recession. The three key indicators that have led to this conclusion include a decrease in inflation, a reduction in private credit, and a collapse in peso loans to the private sector. These factors are all reflecting the impact of the shock plan implemented at the beginning of the year, which has led to declines in consumption, activity, and investment.

The Minister of Economy, Luis Caputo, had initially predicted that inflation would be 40% in the first quarter. However, it ended up being much higher at 65.5%. This was due to factors such as an acceleration of inflation and negative rates policy that led to a reduction in fixed terms by banks for lending. Despite Milei’s optimism during his inauguration speech about challenging times ahead but with hope for improvement, recent data showed otherwise as there was a 5% year-on-year fall in economic activity in December. This was accompanied by significant drops in construction and automotive production, along with layoffs and suspensions due to diminished sales and commercial debts.

Different sectors such as tire industry and investment also presented negative trends and considerable declines in activity, reflecting the deepening economic downturn. Economists consulted by Central Bank expect an contraction of 3% GDP growth accompanied by an increase unemployment rate further exacerbating concerns about inflation control with potential devaluation further accelerating prices if deficit is not reduced soon.

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