The OECD raises its inflation projection for Argentina and says this is due to internal factors

The OECD, the international organization that brings together 38 countries and which works to propose policies that improve the world economy, changed the growth projection for Argentina upwards this Wednesday.

It is estimated that Argentina’s gross domestic product (GDP) will be 3.6% this year, which represents 1.1 percentage points higher than the previous December calculation. The updated percentage is in line with the latest estimates of the World Bank (3.6%) and the IMF for the country (4%).

At the same time, the agency raised his annual inflation projections from 44.4% to 58% and explained it it is largely due to “internal factors” and “unanchored inflation expectations” since “key domestic prices – such as energy prices – they are decoupled from global developments“It is a different look from what they have in the Argentine Ministry of Economy.

Contrary to his predictions for the country, the multilateral organization cut its global growth projection from 4.5% to 3% in the aftermath of the Russian invasion of Ukraine, while in 2023 it is expected an expansion of 2.8%.

“The Russian invasion of Ukraine is immediate slowed recovery from the pandemic of Covid-19 and has led the global economy to embark on a path of lower growth and higher inflation“the Economic Outlook report stressed.

In the case of Argentina, the OECD expects growth of 3.6% in 2022 and 1.9% in 2023 and stressed that “the recent agreement with foreign creditors uncertainty will decrease and will help gradually reduce long-standing macroeconomic imbalances. “

As regards the country’s risk factors, the OECD has nominated “exchange controls, low reserves and limited fiscal space “which “will weigh on investments in 2022 and 2023”.

The agency highlighted “the full resumption of work regarding the pandemic “, even if he indicated it “Real wages remain below 2019 levels.”

“There will be a gradual fiscal adjustment which aims to eliminate the primary deficit by 2025. The adjustment includes limits on monetary financing that will reduce inflationary pressures, while the increase in interest rates in the country already contributes to expanding financing in the national capital market fill the gap between the official exchange and the parallel one “, details the work.

“There is ample room for improving the efficiency of public spending, including revision of tax exemptions and energy subsidies poorly targeted “, he adds. Although he argues that” some well-targeted social expenditures, in particular direct transfers to poor and vulnerable families, should be safeguarded or even strengthened “.

Private consumption, meanwhile, will remain “low in 2022” for later “accelerate in 2023 as confidence in the macroeconomic program grows “; while exports” will remain solid, with high commodity prices “

In the tax field, the report called for “the widening of the tax base” e review “taxes and special pension schemes” to improve results and equity.

“In the short term, to ensure the continuous refinancing of the national currency debt, strict exchange controls will need to be maintainedwith the consequent the damage this will do to growth, “he explains.

“The exchange policy with its mobile exchange rate regime it faces a difficult dilemma between preservation of competitiveness of exports to ensure a continuing trade surplus and support the accumulation of reserves, and the limitation of inflationary pressures, “he assesses.

Among the risks that the OECD sees in the future for the country there are possible external disturbances, “relating, for example, to the rising prices and commissions world interest “. This” could trigger a disorderly adjustment process that would imply a further depreciation of the currency national one spiral of inflation and the violation current tax targets.

On the positive side, the agency sees increased demand for exports which “could translate into greater growth and inflows of foreign currency, reducing pressure on the exchange rate.”

What is happening in the world

Regarding inflation around the world, the agency explained that “the persistence of problems in supply chains and the greater increases in energy and food prices will cause it to persist at high levels for longer than expected. And reaching levels not seen since the 1970s in some advanced economies.

Likewise, he warned that cost pressures “will only begin to ease with the impact of interest rate hikes in 2023”.

At the same time, in a dark tone, the OECD underlined that “there is a risk of a serious food crisis, especially in the poorest economies, due to the high costs and the possibility of shortages”.

The projections, which according to the OECD present a high margin of uncertainty as the evolution of the war is not known, have been revised downwards in most of the major economies.

The Eurozone is estimated to grow by 2.6% (-1.7%) this year with Germany expanding by 1.9% (-2.2%) and France by 2.4% (- 1.8%).

Meanwhile, the United States would grow by 2.5% (-1.2%), China by 4.4% (-0.7%), the United Kingdom by 3.6% (-1.1%) and in Latin America Colombia leads the estimates with 6.1% (+ 1%), while, behind, Brazil aims to grow by 0.6% (-0.8%) and Mexico by 1.9% ( -1.4%).