The Economic Situation in Argentina

In September 2024, nine months into Javier Milei's term as President of Argentina, the country's economy is in a complex state; which is nothing new for an entity like the Argentine economy.

It turns out that over the last decade a series of problems have been dragging on, mainly related to the lack of genuine job creation and the progressive worsening of inflation, which generates a generally confusing and dizzying situation, in parallel with a clear and declining long-term trend.

The report accompanying this note provides an extensive summary of the current situation. It presents a dual structure: relatively positive results on the financial front, together with meager - and still unclear - results on the real front.

Financial and Foreign Exchange Challenges

One of the critical points of the current administration has been the exchange rate policy and the reduction of inflation. Since the beginning of Milei's mandate, the Argentine economy has experienced a devaluation of 109%, which has led to a recessionary shock to the real economy necessary to achieve the objective; according to the president himself.

Furthermore, although inflation is stabilising, the Central Bank's ability to accumulate reserves, due to the policy of sterilising pesos in the cash market with settlement, together with the exchange rate policy of 2% monthly devaluations, continue to raise doubts about its sustainability.

In this sense, the combination of the above with high levels of inflation (at least, with levels higher than 2%) results in a real exchange rate that progressively lags behind, gradually putting pressure on the possibilities of genuinely obtaining foreign currency.

Impact on the Real Economy

The impact of economic policies on the real economy has been severe. Most sectors have recorded double-digit declines in activity during the first half of the year, reflecting the fiscal adjustment and the devaluation shock at the beginning of the mandate. Although some pro-government economists predicted a rapid recovery by mid-2024, current data indicate that activity would only be rebounding from its bottom.

Consumer indicators such as supermarket and shopping centre sales are still showing an uneven recovery. While sales of basic necessities have declined, sales in shopping centres have seen a notable upturn. However, this improvement is still insufficient to offset previous declines.

Inevitably, wages in Argentina have also been affected by the devaluation and inflation. Although modest increases have been observed in some wage indicators, purchasing power remains low compared to pre-devaluation levels. Wage increases have been partial, and vary significantly by sector and collective agreement, leaving many workers with insufficient income to cope with the rising cost of living. Again, if recessionary measures are the beginning of a solution to the problem of the general well-being of the population, for the moment the results are meager.