The last three months of 2020 saw a moderate improvement for Argentina’s economy, as social distancing measures eased and the Central Bank of Argentina (BCRA) helped reduce the risk of an imminent FX crisis. However, the path forward during 2021 will likely be bumpy. The country faces all-too-important negotiations with the IMF in the first half of the year. Moreover, the pandemic rages on; the economic recovery’s strength and longevity will be a function of Argentina’s vaccination progress. Inflation also remains a major problem and will complicate business pricing decisions, as well as society’s well-being.

New opportunities have emerged, however, which could offer significant relief. Soy prices—and commodity prices, in general—are on an impressive rally, which has come at an excellent time for Argentina, right before the agricultural harvest. The construction and manufacturing industries have also started to slowly recover. Businesses should reconsider their market prioritization strategies to target these industries and the consumers that draw from it. While operating margin pressures may still exist in Argentina, firms must dig deep to find resilient customer segments to bulletproof revenue generation during this pivotal period.

Argentina will likely see recovery continue in the first half of 2021, but the economic trajectory will be bumpy. Demand will be slower to return to pre-COVID-19 levels in Argentina than in any other major Latin American market. However, Argentina is slowly emerging out of its third year of recession. Upside potential exists if IMF negotiations go well, and Argentina manages to roll out the COVID-19 vaccines rapidly and effectively. That said, growth will be unequal, with exporting industries and high-income individuals more resilient than other customer segments.  

Much of Argentina’s 2021 outlook predicates on the rollout of COVID-19 vaccines. One of the primary variables to Argentina’s economic and business outlook is the execution of COVID-19 immunization. The country has had a solid start, acquiring a significant amount of vaccine doses of Sputnik V, but uncertainty remains about other vaccines in Argentina’s planned portfolio (e.g., Pfizer and AstraZeneca). Firms should expect economic sentiment and sales to mirror the successes (or shortcomings) of the inoculation process.

Monetary expansion, negative real interest rates, and currency depreciation will pressure inflation. The Central Bank of Argentina has still not brought the country’s chronic inflation problems under control. Consumer prices accelerated during the end of 2020, peaking at 4.0% MOM in December. This trend will likely continue over the course of 2021, as economic reopening, real negative interest rates, and unprecedented monetary expansion will cause inflation. This will complicate pricing decisions for businesses operating in Argentina.

Actions for Business Professionals

  • Discuss a potential market prioritization strategy revamp as new opportunities in Argentina are starting to emerge (e.g., agriculture) and as pent-up demand from social distancing measures is unlocked.
  • By and large, exporting manufacturers will outperform those that sell to the domestic market. Identify and target potential winning companies. Expect and plan for a sudden surge in construction activity (especially civil works) in 2021 given that the government has prioritized that industry in its post-pandemic plan.
  • Discuss strategies with your regional or corporate treasury teams to reduce US dollar–denominated liabilities in Argentina to reduce FX uncertainty. Ensure your multi-stage FX hedging strategy is in place until at least the end of Q1 2021 and is easily extendible if there is no deal with the IMF.
  • Prepare inventories for an uptick in customer demand following the likely IMF deal at the end of Q1 2021      

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