JP Morgan anticipates the failure of Argentina’s program, projecting 110% inflation and at least two years of recession

JP Morgan Chase, one of the most important banks in the world and the largest in the United States, published its latest monitoring report for the American economies, including Argentina.

The projections were revised with an openly pessimistic criterion about the country’s future.

The most feasible inflationary forecast of the banking entity reveals that prices will increase by no less than 7% as a monthly average towards the year’s second half.

It should be noted that, so far, retail prices have increased by 6% in January and up to 6.6% in February, both months that are not characterized by significant volatility of seasonal products.

According to JP Morgan, given the evolution of inflation in the first two months of the year, prices could shoot up to 110% year-on-year by December.

Still, this scenario is relatively optimistic, and some assumptions must be made to fulfill it.

JP Morgan assumes that there will be no significant movements in the official exchange rate until the new Government takes office.

In other words, while the Central Bank is expected to continue with its program of periodic micro-devaluations as part of its crawling peg, a more pronounced devaluation is not expected until at least December 2023 or January 2024.

“We assume a correction in the official exchange rate towards the end of 2023, contingent on the arrival of a new administration in December,” the JP Morgan report explains.

But there is no guarantee that this can be accomplished.

The Central Bank has been facing a sharp loss of reserves since mid-January.

Even with the modification of the IMF’s quarterly targets, the foreign currency drain could boycott the program.

The Government could resort to even more complete and severe control on the volume of imports. However, doing so would quickly lead to a dangerous deepening of the recession that has already been affecting economic activity since August 2022.

Options are scarce, and accumulating reserves in a framework of exchange rate restrictions are usually widely and openly contradictory.

A recession seems practically inevitable.

According to JP Morgan’s forecasts, economic activity will plummet by 1.7% in 2023 and up to 2% in 2024.

The country will again suffer the effects of two consecutive years in recession and up to 13 years of stagflation since 2011.

The EMAE index of general activity published by INDEC has suffered a deep retraction since August last year, industrial production and construction activity have suffered the same fate, and the drop in the level of actual revenue in February 2023 only anticipates the poor performance of the economy during the first quarter of the year.

The banking firm expects a total drop of 2.4% for the Argentine economy in the first quarter of 2023, 3.5% in the second quarter, and a slight 0.1% towards the third quarter.

The change in expectations due to the arrival of a new government could lessen the recessionary impact for the last quarter of the year, expecting a subdued growth of 0.3%.

With information from Derecha Diario

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