By Gabriel Burin
BUENOS AIRES (Reuters) – Argentina’s beleaguered economy is set to rebound in 2025 after two years of recession as the government tries to spark a private sector-driven recovery with its “chainsaw” plan to shrink the size of the state, a Reuters poll showed.
Household spending is expected to pick up thanks to a fall in inflation induced by President Javier Milei’s austerity steps. At the same time, exports and investment are likely to rebound as a web of regulation is unwound.
Gross domestic product will probably increase 3.5% next year following an estimated contraction of 3.7% in 2024 and a 1.6% drop in 2023, according to median estimates of 28 economists polled Oct. 14-18.
“We expect the economy to begin to expand sequentially in the last quarter of the year and to keep doing so in 2025 led by a recomposition of private consumption, with stable public spending,” said Juan Barboza, head of research at Grupo Mariva.
“Energy sector output, which is already starting to take off, will continue rising and substituting imports while activity in the service and manufacturing industries normalizes,” he added.
In the poll, average inflation is seen collapsing to 53% next year from a dizzying 222% clip in 2024, a surge initially fed by a large devaluation of the peso at the end of last year aimed at correcting an artificially strong exchange rate.
Energy investments could reach up to $15 billion in 2025 and $16.5 billion in 2026, due in part to a deregulation push that should facilitate exports and give companies more access to hard currency, a government official said last month.
“However, 2025 is set to be a challenging year, as the country needs to make payments to bondholders while facing limited international reserves,” said Mauricio Monge, Latin America economist at Oxford Economics.
“And implementing further fiscal adjustments will be unlikely due to mid-term elections…Although Argentina could avoid defaulting in 2025 without turning to the IMF, it would deplete all of its buffers,” he added.
The government may find it harder to build on fiscal progress made this year, its first in office. But more revenue could come from mining exports later on, replenishing the central bank’s coffers.
Local markets have been on a roll, with the country’s sovereign risk index falling to its lowest level since a major debt restructuring in 2020 amid rising confidence in tough cost-cutting measures.
This, combined with rising U.S. dollar deposits related to a one-off tax amnesty, has helped keep in place the government’s foreign exchange “crawling peg” system of a monthly 2% depreciation rate.
The unusual bonanza has lessened the problems caused by Argentina’s labyrinthine set of capital controls and multiple currency rates which the economic team is reluctant to eliminate, fearing this could lead to another big devaluation.
But some investors think Milei should eventually honour his campaign promises of removing the state’s hand from financial matters altogether and allow the local currency to trade more freely in a single market.
“Keeping this scheme will slow down investments needed to drive significant growth to overcome 12 years of stagnation, which in turn could jeopardize the program’s sustainability,” said Federico Gonzalez Rouco, an economist at Empiria.
(Other stories from the Reuters global economic poll)