Argentina’s economy is worse than expected, mainly due to drought affecting its main crops, according to projections by international organizations and rating agencies.

The World Bank and the IMF have cut their growth forecasts for this year from an initial 2% to 0% and 0.2%, respectively. And Moody’s just lowered its forecast from a contraction of 0.5% to 1.5% in 2023. On the other hand, it estimates that in 2024 the country’s GDP will grow by 1.8%, when previously it estimated an increase of 1.5%.

The agency says that, although economic activity grew by 2.9% year-on-year in January, ending four consecutive declines, “starting in February it is likely that the economy is beginning to feel the effects of the severe drought that is hitting the country”.

“The outlook for agricultural production has further deteriorated in recent weeks, suggesting that agricultural production will take an even bigger hit than the 2018 drought,” which is why Moody’s has changed its projections for Argentina’s GDP.

For the rating agency, the effects of the drought will not only be felt on supply, but also on the loss of export earnings at a time when foreign currency is scarce. “This is likely to lead to increased import controls, which will affect domestic demand and will reduce the availability of capital, intermediate goods and consumables,” he predicts.

Despite these controls, the company believes that pressure on the central bank will continue to increase on reserves.

“The parallel exchange rate has weakened markedly since November as the monetary base continued to expand at a rapid pace as the fiscal deficit continued to monetize,” the agency said. In this sense, monthly inflation accelerated for the third consecutive time in February, breaking with the gradual decline in the second half of 2022. Therefore, Moody’s also revised its inflation forecast 80% to 120% by the end of 2023 and 70 to 80% by 2024.

What is the biggest distortion in the economy?

The company argues that the rapidly deteriorating macroeconomic environment leads to the “introduction ofand new distortions in the form of another preferential exchange rate for the agricultural sector”, the agricultural dollar 3. And he adds: “The system of multiple exchange rates continues to be the biggest distortion of the Argentine economy, That exacerbates the imbalancesinhibits external financial adjustment e promotes inefficiencies which slow down economic activity.

“As economic imbalances continue to grow, they are there lack of political will to implement adjustment measures beyond the random policies to run until the election Generals of October”, he points out.

“This suggests that the balance of risks is tilted towards deeper contraction, higher inflation and further pressure on scarce reserves Central Bank currency, which it would complicate the prospects for adjustment after the elections and would increase the risk of default through an increase in interest rates and by increasing the risk of default through 2024-25″.

NEITHER