Wednesday, August 5, 2020

The economy would drop almost 13% this year, with inflation of 4% monthly since October

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The quarantine condemns the economy to increase its fall and projects it to the end of the year with inflation rising again, according to analysts. Source: LA NACION – Credit: Hernán Zenteno

The extension of the quarantine, in a framework of indefiniteness in the renegotiation of extreme debt, increased pessimism

from analysts and consultants, who significantly worsened their projections

on the evolution of the economy

in the rest of 2020:

they imagine it falling between 12 and 13% and with inflation settling above 4% monthly towards the end of the year.

These are the outstanding data left by the Market Expectations Survey (REM), the most comprehensive monthly survey of the local market carried out by the Central Bank (BCRA) between June 26 and 30, considering the forecasts of 41 participants (27 consultants). and local research centers, 12 banks and two foreign analysts).

The exhibition shows that

The respondents raised the expected contraction in activity from a range ranging from 9.4 to 9.5% to another ranging from 12 to 12.9% and expanded their estimate of the primary fiscal deficit by another almost $ 100 billion.

They forecast it at $ 1,647 billion until a month ago and now they project it at $ 1,746.0 billion.

The dimension it reaches

the fall in activity

, which they estimate would have generated a drop of 16.5% in the Gross Domestic Product (GDP) in the second quarter compared to the first,

It would allow inflationary pressures to remain subdued for a few more months.

And it would close the inflation rate in the year between 37.2% (according to the most reliable forecasters) and 40.7% (sample average).

“The growth expectation for the remaining quarters of 2020 suggests that the effect of the coronavirus pandemic is perceived as transitory,” the BCRA chose to assess.

However, the relative tranquility in relation to the behavior of prices would only come until August, since they then imagine the CPI measurements on the rise to stand at a monthly rate of 4% from October to the end of the year, reaching 4.2 % in December.

The acceleration of inflation would come hand in hand with the rebound in activity (imagine a recovery of 5.1 to 6.9% for GDP in the third quarter, which would remain between 6.1 and 7.1% in the quarter final) and the impact that the sustained monetary issue would have, given that they imagine that the average nominal exchange rate reaches $ 88 per dollar at the end of the year, a price $ 0.50 lower than that projected in the previous REM.

A repeating effect

Respondents made these projections considering that in June inflation would have been 2% (the official data will be known on Wednesday 15 of this month).

And as had happened in May, the respondents again adjusted their inflation estimates downwards for the short term, but foresaw an upward monthly path for the median.

By case, they reduced their forecasts for the CPI for July (from 3 to 2.5%), August (from 3.3 to 3%) and September (from 3.7 to 3.6%) on average, but kept them at 4% for October and rose from 3.9 to 4% for November at the vex, which forecast a rate of 4.2% of the general level of inflation for December.

The shift has, in turn, an impact on its inflation projections for subsequent years. For this reason, their projection on the evolution that the general CPI will have next year increased from 41.1 to 44.6% year-on-year and from 34.7 to 35.1% that they expect for 2022. In turn, the forecast Analyst inflation for the next 12 months also increased, going from 51 to 52.5% year-on-year.

In relation to the interest rate, the forecast is that the wholesale fixed-term rate (today anchored at 30% per year) will begin to move very slowly upwards when inflationary pressure increases, reaching an average of 30.8% towards end of the year.

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