The government is facing a recession as indicated by three key factors: a decline in deficit, signs of decreasing inflation and a collapse of private credit. These indicators reflect the impact that the shock plan had on consumption, activity and investment at the start of the year.
Inflation had been reported to be 30% in December, January and February, but it ended up being much higher at 65.5%, leading to concerns that people would not accept such an increase. However, the initial shock plan resulted in a big jump in prices and a strong fiscal adjustment, causing prices to begin to decline.
The Central Bank revealed that there was a significant collapse in peso loans to the private sector due to factors such as inflation acceleration and negative rates policy. Javier Milei, Minister of Economics, noted during his inauguration speech that challenging times were ahead but there was hope for improvement. However, recent data showed otherwise with a 5% year-on-year fall in economic activity in December and significant drops in construction and automotive production along with layoffs and suspensions due to diminished sales and commercial debts.
Different sectors such as tire industry and investment presented negative trends along with considerable declines in activity which reflects the deepening economic downturn. Economists consulted by the Central Bank expect an contraction of 3% accompanied by an increase in unemployment. The concern remains whether the government will be able to lower inflation while avoiding another potential devaluation further accelerating prices if deficit is not reduced.