In recent weeks, the government has become increasingly concerned about the state of the economy. This concern is based on three key factors that indicate a possible recession. These include deficit reduction, signs of easing inflation, and a collapse in private credit.
Economy Minister Luis Caputo has noted that when it was announced that inflation had reached 30% in December, January, and February, they predicted that the public would not accept such an increase. However, despite their initial concerns, this did not come to pass. Instead, Caputo believes that the shock plan led to a significant decline in prices and a strong fiscal adjustment. He had originally predicted inflation of 40% in the first quarter but it ended up being much higher at 65.5%.
The central bank has revealed that there has been a significant collapse in peso credit to the private sector due to factors such as accelerating inflation and a negative rate policy. This decline in credit has led to reduced investment and commercial debt and will likely continue to have an impact on economic activity for months to come.
During his inaugural speech, Javier Miley emphasized the challenges ahead but also expressed hope for improvement. However, recent data show otherwise as a 5% drop in economic activity on an annual basis was recorded in December alone. The construction industry also saw significant declines, with layoffs and suspensions due to reduced sales and commercial debt also taking their toll on various sectors like automotive manufacturing industry too.
Economists consulted by the Central Bank predict a contraction of 3% in GDP followed by an increase in unemployment rates as these trends continue to affect different sectors like tire industry and investments which showed negative growth reflecting the deepening economic downturn . There are concerns about whether government will be able reduce inflation as potential for another devaluation looms if deficit is not controlled .