Balancing Growth and Fiscal Responsibility: Argentina’s Economy Strikes Back but Faces Hurdles in 2023

In February, Argentina’s economy showed signs of recovery as President Javier Milei’s economic shock therapy plan started to take effect. However, the pace of growth was slower than expected, with a 0.2% monthly decline in activity. Despite this, there were some positive signs for the country’s long-term prospects, with Milei announcing a quarterly fiscal surplus for the first time since 2008.

Since taking office in December, Milei has implemented a number of austerity measures aimed at reducing inflation and boosting economic growth. These measures include lifting price controls, freezing public works, and devaluing the currency. While these measures have helped to reduce monthly inflation from its three-decade high of 26% in December, they have also had a significant impact on economic activity.

One area where the austerity measures have been particularly felt is in construction activity, which decreased by 24.6% annually in February. Spending at small- and medium-size businesses, which are the largest sector of employment in Argentina, also fell by 12.6% in March. These declines highlight the challenges that lie ahead for Milei and his team as they work to balance economic growth with fiscal responsibility.

Looking ahead to the year ahead, economists surveyed by Argentina’s central bank expect GDP to contract by 3.5%. While this is an improvement from last month’s projections of a 6% contraction, it still represents significant challenges for the country’s economy. Despite these challenges, however, Milei remains optimistic about Argentina’s future prospects and sees this surplus as a crucial step towards combating inflation and stabilizing the economy.

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