Due to the current severe recession, some Wall Street banks are expecting a collapse in activity and slight decline in inflation by the end of the year. In its latest reports, JP Morgan estimates a decline in the economy of 3.6% per year and a rise in retail prices of 200% in 2024 – about 11 points less than last year -, so The recovery of activity would come in 2025 after the “great stagflation”.
The body analyzed the latest official data which showed a monthly decline in GDP of 1.2% in January. While believing that the contraction of domestic demand was necessary to correct previous imbalances, he recognized that “the chosen policy combination may have exacerbated the contraction in domestic demand between capital controls, devaluation of real purchasing power, spending adjustment and reduction of inflation.
In the report he had access to Clarion, The bank underlined that, since the peak observed last October, real activity has lost 5.8% until January 2024 and forecast a strong adjustment in domestic demand for the first half of the year due to three factors: devaluation and its consequent inflationary acceleration, the liquefaction of pesos due to the need to correct relative prices and very negative real rates, yesThe government’s “draconian” fiscal adjustment.
Given the collapse of industry, commerce and construction, JP Morgan estimates a collapse of 15.3% in the first quarter and a recovery in the second quarter, to close the year with a decline of 3.6%. “The speed and depth of the free fall dwarfs the recessions of 2018 (when a sudden cessation of fund inflows triggered a devaluation) and the adjustment of 2015-2016, when the Macri government took office,” the report warns.
According to the entity’s projections, The rebound would come in 2025 with growth of 5.2% and inflation of 40%. The rally in sovereign bonds reflects a certain optimism on Wall Street based on positive data such as the trade surplus, the increase in reserves, the fiscal surplus and the slowdown in inflation in recent months from 25.5% in December to 20.6 % in January and 13.2% in February.
As for the exchange rate, eJP Morgan valued the dollar at $1,250 in June, $1,400 in September and $1,500 in Decemberwhich in the latter case implies a 74% increase from the current price of $858. This adjustment implies a devaluation less than expected inflation of 200% for this year, while the government continues with a rate of increase close to 2 % monthly, which causes the peso to appreciate against other currencies.
Despite the decision to trample on the dollar, in February the cash current account recorded a surplus of 1.6 billion dollars, which brings the positive balance accumulated in the year to 3.5 billion dollars compared to the deficit of 2.9 billion recorded in the same period. of the previous year. “It should be noted that much of the improvement can be explained by lower payments for imports,” reads the report from the bank’s research department.
In other words, the decrease in cash imports is mainly due to new restrictions on the payment of such operationssince the BCRA only allows payment in four installments (30, 60, 90 and 120 days), which in turn is the other side of the accumulation of new trade debt with importers and which increased by 5.7 billion dollars between January and February, according to the entity’s calculations.
Thanks to these measures, the Central Bank continues to accumulate reserves and purchase $11.2 billion since December 10 (consistent with a daily average of $157 million). According to JP Morgan, net reserves are negative by 5,000 million dollars (including amortization of the series 2 of the Bopreal bond for 1,500 million dollars in the next 12 months), and liquid reserves amount to 7,600 million dollars (from almost zero when Javier Milei took office).
Finally, the report highlights the smaller exchange rate gap, which is now around 30%. The reduction is due to the dollar “blend”, for which exporters pay 20% of their sales in cash with settlement, and the validity of exchange controls. Going forward, the bank expects less reserve accumulation if import payments are normalized, although the changing dollar “blend” could accelerate purchases.
Source: Clarin
