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ECONOMY | 15-10-2019 13:40

Inflation at 57.3%, economy to shrink 3.1% – IMF revises 2019 forecasts

Fund confirms Argentina's economy shrank by 2.5% in 2018 and predicts inflation will hit 39.2% in 2020.

President Mauricio Macri's re-election chances have suffered another blow, after the International Monetary Fund downgraded its forecasts for Argentina on Tuesday, predicting the country's economy will contract by 3.1 percent in 2019.

The institution also predicted in a new report that Argentina's runaway inflation will close out the year at 57.3 percent. It foresees price increases of 39.2 percent in 2020.

The forecasts were issued via the Fund's World Economic Outlook (WEO) report, which was issued from Washington on Tuesday, as the IMF opened its annual meeting.

Argentina "has been experiencing very serious macroeconomic difficulties," the IMF said in its report, though it indicated the recession will be less severe in 2020, with GDP expected to decline by 1.3 percent.

Back in July, Fund had previously forecast a 1.8 percent contraction for Argentina in 2019.

"The contraction in Argentina continued through the first half of the year, albeit at a slower pace, and risks going forward are clearly to the downside due to the sharp deterioration in market conditions," the report's authors wrote.

"The primary elections in August triggered a sharp increase in government bond yields amid a wider sell-off in Argentine assets," they added.

The IMF also confirmed that Argentina's economy shrank by 2.5 percent in 2018.

The government has received more than US$40 billion so far of its three-year US$57-billion loan with the IMF, agreed in June 2018 in the midst of a currency crisis. IMF officials are currently holding off from approving the next disbursement of funds, as it waits to see what happens in this month's presidential election.

Global outlook

The world economy in general is slowing to its weakest pace since the global financial crisis, as the US-China trade war and other factors – such as Brexit – undercut business confidence and investment, the organisation said.

The IMF warned that the outlook is beset by risks, and urged policymakers to work to find resolutions to trade disputes, since there are limited tools to respond to a new crisis.

"With a synchronized slowdown and uncertain recovery, the global outlook remains precarious," International Monetary Fund chief economist Gita Gopinath said in her introduction to the latest forecasts.

The IMF for the past year has every three months cut projected growth for 2019 as trade conflicts worsened.

In its new report, it trimmed the estimate by another two tenths, to three percent. The report also lowered the 2020 forecast by a tenth to 3.4 percent.

"At three percent growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions," Gopinath said, welcoming news of a truce in the US-China conflict, announced Friday after talks in Washington.

The US-China trade war alone is estimated to shrink the world economy by 0.8 percent in 2020, the IMF said.

But Gopinath said a US-China truce would reduce that impact, essentially adding a tenth of a percent back to global GDP for 2020 for each round of tariffs reversed, including those Washington had planned for this week, as well as another batch due to hit China in December.

In addition, the trade conflicts and a slowdown in auto sales worldwide means trade growth has slowed sharply, falling in the first half of the year to its weakest since 2012, with an estimated increase of just 1.1 percent this year after a 3.6 percent jump in 2018.

– TIMES/NA/AFP

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