The IMF hopes that inflation will slowly decline and that the economy will recover in the second quarter

This would allow a gradual reduction in the interest rate which, combined with an increase in real wages and exports, would generate "a recovery in economic activity from the second quarter of 2019. "

That's what he pointed out Alejandro Werner, Director of the IMF's Western Hemisphere Department, in a letter on the blog "Dialogue Fund" published this Friday.

In this writing the Fund has ratified its estimate of a 1.7% decline in Argentina's gross domestic product for the current year, although it expects a 2.7% expansion for 2020.

Werner said Argentina's economy had gone into recession in 2018. A severe drought has dramatically reduced agricultural production and exports, and the sharp depreciation of the peso recorded in mid-2018 spurred the growth of the economy. Inflation, which affected disposable income and investor confidence. investors

However, he considered that "The government's stabilization plan, based on revised and strengthened monetary and fiscal policies, has helped mitigate the financial turmoil and stabilize the exchange rate.".

From the regional point of view, the IMF estimates that economic activity in Latin America continues to increasebut at a slower pace than expected.

The weakening global economy and rising political uncertainty are contributing to the moderation of growth momentum in Latin America. In general, the Fund provides that the region grew by 2% in 2019 and by 2.5% in 2020, which is much lower than its counterparts in other regions.

Among the reasons for the slowdown in growth in the region, the IMF highlights tighter global financial conditions and falling commodity prices which has generated trade tensions between the United States and China.

In addition, monetary policy has been contracted in some economies to contain inflationary pressures related in part to the depreciation of the currency, further dampening growth.

In terms of tax policyabout half of the region's economies have reduced their primary deficit as a share of GDP in 2018. However, the Fund believes that "This was not enough to put public debt on a downward trajectory, with the exception of Argentina."

Political uncertainty

The The IMF warns of an increase in political uncertainty in the region. By case, "in BrazilFragmentation of the Congress could create obstacles to the implementation of the ambitious program of structural reforms, fiscal consolidation and pension reforms.

And he warned that "if this continues, the political uncertainty could discourage investment in the future and undermine the growth prospects of the region".

For the IMF, several global risks could also further affect the prospects for Latin America and the Caribbean. For example, an increase in trade tensions between China and the United States, or a slowdown in some major economies could result in lower trade growth in the region.

The region, in turn, would be penalized if global financial conditions tightened further, including a sudden increase in global financial volatility, rising US interest rates and a stronger dollar.

In addition, he claims Werner, Increased volatility in global markets could result in reduced capital flows to the region, which could affect the potential for investment.

Among the internal risks mentioned by Werner "weaker confidence due to political uncertainties in Brazil and Mexico, as well as the uncertainty related to the elections in Argentina". More specifically, he emphasizes that "In Argentina, the general elections to be held in 2019 could reduce the appetite for reform".

In this context, the Fund recommends that debt and deficit reduction continue in several countries to ensure debt sustainability. In his view, these policies would minimize the adverse effects on economic activity and poverty, for example by protecting investments in infrastructure and well-targeted social spending, while continuing to reduce non-priority spending.

In addition, Werner believes that it is necessary that monetary policy manages the dilemma between sustaining growth and keeping inflation expectations firmly anchored in a context of currency depreciation and price volatility of commodities. based. According to him, "maintaining the flexibility of the exchange rate is fundamental to resist shocks".

Venezuela

With regard to Argentina's main trading partner, that is to say Brazil, the Fund expects growth of more than 2% in 2019-2020 for the first time since 2013.

"The new government's pro-market reform program has helped build business confidence and improve growth prospects in the short term." Key policy priorities it is the pension reform and the reduction of the budget deficit, in order to guarantee the sustainability of the public debt ", says Werner.

On the other hand, as far as Venezuela notes that the economic and humanitarian crisis continues. Real GDP is expected to fall further in 2019, accumulating a decline since 2013 at more than 50% (due to the collapse of oil production and the deterioration of the non-oil sector). It is also expected that the Hyperinflation and emigration intensify in 2019. The evolution of political events adds another level of uncertainty to the country's outlook.