Argentina's economic paralysis will probably get worse next year, a Reuters poll showed on Tuesday, as a newly elected president scales back state intervention, hoping for a swift recovery. While far from the dark days of crisis 15 years ago, rampant stagflation, or rising prices accompanied by no growth, is forecast to deepen in 2016.
Argentina's economy will likely contract 0.5 percent in 2016 following anemic 0.8 percent growth this year, according to the median estimate of 11 local and international analysts. Inflation is expected to jump to 35 percent from a projected 27.1 percent in 2015, already the highest amongst G20 countries by a wide margin. President-elect Mauricio Macri takes office on December 10, with a promise to liberalise Argentina, a financial pariah since a major sovereign default in 2001.
Macri will have to trim energy and transport subsidies to narrow the fiscal deficit and revive investor confidence. Allowing long-delayed utility tariff hikes could foster much-needed private investment. A swift elimination of capital controls is also on the table. Macri has spoken out in favour of unifying Argentina's multi-tiered exchange rate from the first day of his term, which would likely lead to a steep devaluation of the peso.
"The removal of subsidies, FX depreciation, curtails in public spending and tighter monetary policy will hamper growth in the short term," Oxford Economics analysts wrote in a report last week. The slowdown in China and recession in Brazil would also continue to weigh on Argentina next year, they added. The poll showed a median exchange rate of 15.6 pesos per US dollar at end-2016, implying a devaluation of about 38 percent currently. Although a currency plunge could dent Macri's popularity by fuelling inflation, it would also help stabilise the country's depleted international reserves and reduce speculation in the black market, where the dollar is worth 55 percent more pesos than in the official market.
Economists in the poll bet his policies could prove successful by 2017, with expected growth of 3.5 percent and a lower inflation rate of 19.3 percent, the poll showed. "2016 is going to be a transitional year as it will take some time for the new government to redress some of the imbalances they are inheriting," said Juan Pablo Rud, an economics professor at Royal Holloway, University of London. "The following year, things should look better." Much will depend on whether Macri approves economic measures lacking a majority in Congress. In neighbouring Brazil, where Macri plans to make his first trip abroad, political gridlock has worsened a recession that economists expected to be only mild at the beginning of the year.