OECD predicts Argentina’s economy to recover but remains below pre-pandemic levels
The Organization for Economic Co-operation and Development (OECD) predicts Argentina’s economy to grow in 2021 and 2022, but will nonetheless remain well below pre-pandemic levels, according to its biannual Economic Outlook report. world published Monday in Paris.
The organization stressed that “bold and timely steps have been taken to contain the pandemic and support households.” The OECD predicts that Argentina’s economy will grow 6.1% in 2021 and 1.8% in 2022, according to the report, stressing that “persistent macroeconomic imbalances and new mobility restrictions will weigh on domestic demand and limit recovery”.
?? The continued monetization of the budget deficit will keep inflation high and job creation will slowly pick up, but the high level of informality will remain a concern, ?? adds the report.
The OECD also noted that higher incomes, in part linked to high commodity prices, have improved fiscal performance slightly, while pandemic-related spending will gradually recede once the recovery takes hold. This will reduce the need for short-term monetary financing.
The organization also recommended that “charting a medium-term path to fiscal sustainability would help build confidence and boost investment.” and argued that “improving the efficiency of public spending and revising exemptions in the tax system offers a wide scope for tax savings. “
The document also pointed out that “expanding conditional cash transfers can help reduce poverty, which affects 42% of the population, and support incomes, including workers. “
The OECD has estimated that new mobility restrictions imposed from April are delaying the recovery. Employment fell drastically during the year 2020 in line with economic activity. Annual inflation is around 40%, despite weak domestic demand and economic growth. [amid] strict price control. ??
The report also pointed out that “the delay in the agreement with the IMF and the uncertainties surrounding the next debt repayment put pressure on the value of government securities, some of which were restructured in September 2020.”
The OECD hailed all the instruments used to deal with the health emergency and stressed that “bold and timely measures have been taken to contain the pandemic and support households”.
?? Improved unemployment benefits and transfers have supported the poor and vulnerable. Wage subsidies and lower payroll taxes have helped some companies partially offset the costs of the widespread ban on layoffs, ?? the document continued.
The Covid-19 response included additional spending on social media that reached 2.2% of GDP. Higher commodity prices and tax revenues associated with exports limit immediate pressures on the parallel exchange rate and the need for short-term monetary financing, ?? the OECD said as it forecasts Argentina’s GDP to grow slightly above 6% in 2021 and below 2% in 2022.
The imbalances will weigh on domestic demand and limit the recovery. The reopening of domestic activities and vaccination will progress slowly, and collective immunity should be achieved in 2022, ?? the specified document.
However, the OECD has warned that “unemployment, stagnant wages and increasing informality are eroding the purchasing power of Argentines, especially for low-income households.” while tight capital controls, a combination of price control policies and import restrictions and higher corporate taxes will weigh on investment and imports will lead to a downward outlook and include a disorderly correction of macroeconomic imbalances. ??
The OECD has also stressed that speeding up the immunization process would limit setbacks in the fight against covid-19 and reduce macroeconomic imbalances will be key to rekindling confidence, and this will require prudent fiscal policies with less funding. monetary deficit, strengthening the credibility and independence of the central bank, and, finally, the elimination of exchange controls.