The global context might still be favorable for Argentina

RIO DE JANEIRO, BRAZIL – A good government manages to make the most of favorable business cycles in the global economy and to minimize the local impact of unfavorable scenarios as far as possible. It is more likely to miss positive phases through its own mistakes than to avoid the consequences of adverse phases.

Like all other countries, Argentina suffered from the pandemic, but internal decisions led to a fall in its GDP of almost 10% in 2020, one of the largest in the world. Several international economic data impact the local economy and will continue to do so in the coming months.

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Even with risks, due to the possible resurgence of Covid, problems in supply chains, and higher inflation, there is a context of global expansion in which all countries are favored despite their differences.

According to the IMF Economic Outlook presented yesterday, after the 3.9% contraction recorded in 2020, the world economy would grow 5.9% in 2021 and 4.9% next year.

The evolution of the dollar in the international market has multiple impacts in Argentina because its appreciation at the global level puts pressure on the local market, making the management of the exchange rate policy even more difficult.

On the other hand, the dollar rate moves in the opposite direction to that of commodities and, therefore, when it rises, the price of Argentina’s main export products falls.

In this sense, analysts estimate that the U.S. currency will maintain an upward trend in the coming months, but without abrupt jumps, which are the ones that most complicate emerging markets.

A fact to follow closely is that of energy prices, which could have additional increases in the context of restricted supply, making Argentina’s imports more expensive.

The rise of the dollar will occur because the markets discount that in November the Federal Reserve will decide to start reducing the purchase of assets, which currently amounts to US$ 120 billion per month.

But the cut in monetary stimulus will not include, and this is good news, a rise in interest rates in the short term, which should only occur at the end of 2022 or in 2023.

The slowdown in the level of activity in the United States in the coming months and what is still needed to normalize the labor market are the factors that will delay the rate hike and consequently a further strengthening of the dollar.

In this context, the price of commodities will be sustained, but it is not expected that they will return to the high level they had a few months ago. On the demand side, the performance of the Chinese economy is critical, which would grow by more than 8% in 2021 but would slow down in 2022.

However, this process would be partially offset by the higher growth of other Asian countries’ substantial importers of raw materials.

The performance of Brazil, Argentina’s largest trading partner and the leading destination of its industrial exports, is another critical factor. In this case, the trend is not favorable, because according to market analysts, the economy will grow 5% in 2021 but will only grow around 1.5% next year.

On the other hand, against the backdrop of a slowdown in inflation momentum in the coming months, some stability is expected due to the interest rate hike made by Brazil’s Central Bank.

The international context, which was very favorable for Argentina in the first half of the year, is now moderately favorable. External variables are always closely followed because what happens outside the country’s borders is decisive for its economy.