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The World Bank predicts that Argentina’s economy will collapse by 2.8% in 2024 and talks ofdollarization

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The World Bank predicted it Argentina’s economic activity will decline by 2.8% in 2024. In this way, the organization has revised its projection downwards by 5.5 percentage points since the beginning of the year, when it estimated the country’s growth of 2.7%.

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The continuation of the recession will occur “thanks to the stabilization plan implemented by the new government, which includes the realignment of relative prices and the elimination of fiscal and external imbalances”.

William MaloneyWorld Bank chief economist for Latin America and the Caribbean, said: “The review is in favor of the such strong cuts in public spending, necessary to achieve fiscal balance and by the increase in prices”.

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And he ventured, when questioned about the possibledollarisation promoted by Javier Milei: “Probably These measures were necessary. Inflation was fueled by these imbalances. This is the way to build solid growth and is a precondition for this dollarizationThat This cannot be done until there is a solid fiscal basis“.

“The government is doing well to try to control fiscal expenditure”, he concluded, reiterating a request already made by the International Monetary Fund: “At the World Bank we want to guarantee the protection of vulnerable families, make public services more efficient, with food security and good public health,” concluded Maloney.

At the same time, The World Bank expects a strong recovery in Argentina’s gross domestic product (GDP) in the following years: in 2025 there would be a growth of 5% -compared to the 3.2% calculated months ago- and in 2026, another leap of 4.5%, thanks to the push of “better climatic conditions, investments in the energy sector and the normalization of agricultural production”.

“THE inflation increased sharply in December 2023, driven by the effect of a devaluation of the official exchange rate and the removal of price controls. although the social care is well targeted, the real value of social benefits, including pensions and social transfers, fell 30% year-over-year in February 2024“the agency said in a report.

He also underlined the fiscal results that the economic program of Milei and Luis Caputo is producing, although he indicated that the country risk remains among the highest in the region.

In its recent overview of the country, the agency said: “The economy contracted by 1.6% in 2023 due to persistent macroeconomic imbalances and a severe drought that caused a 26% decrease in agricultural production ”.

The Washington, US-based organization provided around $1.8 billion to Argentina in 2023 and planned another $700 million for 2024, a figure that could grow significantly in the coming months. Argentina has an active portfolio of 26 investment projects with the World Bank, totaling $8.46 billion in loans.

The economy of Latin America

Haiti and Argentina are the unique countries in the Latin American region and the Caribbean who will have a negative performance in 2024, according to the World Bank, which did not measure for Venezuela. Last year these two countries were, together with Peru, the only ones to have suffered a recession.

Regionally, the World Bank expects GDP to grow 1.6% in 2024 and forecasts growth of 2.7% by 2025 and 2.6% in 2026. “These are the lowest rates compared to all other regions of the world and insufficient to revive prosperity”, warns the organization.

“Many families are under pressure because social transfers are declining and wages have not yet returned to pre-pandemic levels“, he specifies.

The organization’s overall overview, which this time focuses on competition as the central ingredient for long-term sustainable economic growth, also mentions Argentina as an exception in the chapter on inflation.

“On the monetary front, the independent central banks of Brazil, Chile, Colombia and Peru continue to cut rates, while others follow suit. Regional inflation, with the exception of Argentina and Venezuela, stands at 3.5%, compared to 5.7% in the OECD“the report says.

“In most Latin American and Caribbean countries, inflation expectations remain controlled and central banks’ targets for 2024 are expected to be achieved. This successful fight against inflation partly reflects external factors – prices fuel and food prices have fallen – although underlying inflation is also starting to decline, a further sign of deeper progress,” the bank adds.

Source: Clarin

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