Argentina Economic Outlook. Third quarter 2020

Summary

The Covid-19 spread, along with the mobility restrictions, hit an economy with a three-year long recession. These facts lead us to expect a “square root” shape to emerge from the crisis in the following quarters, mainly driven by a “statistical rebound” rather than a genuine economic recovery.

Key points

• Key points:
• The activity contraction is being sharper than expected, that is why we revised our estimation of GDP growth downwards for 2020 to -14%, from a previous -11%. We expect a timid recovery for 2021 (given the magnitude of the decline) of 5.2%
• Unemployment could reach 18.6% in 2020. The informal and the least digitally adaptable sectors will take the biggest hit
• Given the fall in tax revenues and the increase in public expenditure due to the Covid-19 crises, we adjust our fiscal deficit to 7.5% of the GDP, with money issuance as the only source to finance this gap
• The debt restructuring deal should be reached between July-August (at least with a significant part of the bondholders). This possible outcome assumes that the government will marginally improve the current offer
• The post-pandemic challenges will involve not only short term measures but also structural reforms. Announcing a long-run economic path to follow, is key to achieving basic macroeconomic equilibriums

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