Following a faster-than-expected 2021 rebound, Argentina’s economic recovery will slow in 2022 amid 50%+ inflation, heightened FX pressures, and rising poverty levels. Commodity prices, which bolstered Argentina’s 2021 GDP recovery, will moderate in 2022, slowing USD inflows and forcing the government to accelerate negotiations with the International Monetary Fund (IMF) after the midterm elections.

However, with political tensions climbing in the wake of the ruling coalition’s defeat in the PASO primaries, Argentina is facing a pivotal moment that will shape the country’s 2022 outlook. Our view is that the government will follow through with IMF negotiations, likely putting the country on a gradual path toward fiscal consolidation. Still, rising pressures from within the Frente de Todos ruling coalition could jeopardize the IMF agreement, raising risks of dual debt and currency crises in 2022.

Our analysts are constantly evaluating changing market trends to ensure you have the most updated and relevant information for your strategic decisions. Keep reading for our analysis of the key trends in Argentina that you need to pay attention to.

Prepare for a tumultuous Q1 2022 as pressures multiply on the FX and inflation fronts

After a strong 2021 rebound, Argentina faces a challenging 2022 outlook. With a more moderate external environment and economic pressure to lift 2021 ad hoc policies such as price and capital controls, the country faces risks of dual currency and debt crises if it is unable to finalize an agreement with the IMF. Firms should continue to target key industry segments and high-income individuals as well as keep FX hedging in place, as peso depreciation is likely after the midterm elections.

The ruling party will lose control of Congress but retain an important presence

The PASO primaries delivered an upset for the ruling coalition, with the opposition gaining significant ground in key Congressional races. If the midterm results follow a similar trend as the primaries, the ruling coalition could lose Congressional control. The PASO loss weakened the government significantly, with governability risks rising for President Alberto Fernández as he struggles to maintain a more moderate stance amid pressure to implement a more interventionist policy agenda ahead of the midterms.

A return to fiscal mismanagement is likely in the wake of the primaries, but revenues are slowing

IMF negotiations, which are expected to conclude toward the beginning of 2022, will continue to be pivotal to Argentina’s short- to medium-term outlook. The IMF is likely to push the Fernández administration to develop a credible macroeconomic plan with exit guidelines from the capital controls, which could help bolster market confidence. However, the IMF may also require some degree of fiscal tightening; this is already creating ruptures within the ruling coalition and is likely to fuel popular discontent.

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