For quite a while now we’ve been hearing negative sentiment regarding the near future. At least since the pandemic delivered an unexpectedly hard blow to the whole world, which had wide-ranging repercussions, there’s a general feeling that things are about to get even worse. The end of the global Covid-19 pandemic came with the outburst of a new war which threatened to expand from the regional to the global stage as Russian strongman Vladimir Putin invaded Ukraine in an apparent offensive/defensive move aimed at deterring NATO. Battered global economies trying to get back on their feet after the powerful shock of lockdowns across the globe and supply chain restrictions were hit once again with massive uncertainty, rising energy prices and continued global bottlenecks sparking a bout of inflation the likes the world economy hasn’t seen in half a century. While Argentina is special in that it (forcibly) operates outside the global financial system, it is undoubtedly impacted both positively through an increase in global commodity prices and negatively given reduced demand from its major trading partners and tighter global financial conditions making it even harder to attract much-needed dollars.
And just as the global economy was heading into an unavoidable recession, sentiment seems to have been reversed as optimism appears to take over. It’s a cautious positivity that can be seen in global equity markets which have rallied on the back of an expectation of an imminent reduction in monetary tightening by the world’s major central banks, starting with the US Federal Reserve.
The IMF highlights several downside risks including a slowdown in China, an escalation of the war in Ukraine, debt distress, persistently high inflation, sudden financial re-pricing and geopolitical fragmentation.
Latin America has been fairly resilient despite global shocks in 2022, growing nearly four percent on average according to the IMF—Argentina clocked in a 4.6 GDP increase, which undershoots Economy Minister Sergio Massa’s expectations of above five percent. Lower food and energy prices coupled with decisive action by central banks to target inflation have allowed countries to lower price increases, yet core inflation remains high.
What does all of this mean for Argentina going into an electoral 2023?
The first few years of the Mauricio Macri presidency saw the country jump right back into global debt markets in a completely irresponsible manner, imploding at the first second of financial jitters in early 2018 and going into full crisis in 2019 after Macri lost the primaries when capital controls were restored in a situation which persists to this day.
Alberto Fernández’s economic tenure has been mixed, with inflation exploding nearly into triple digits while economic growth has strongly rebounded. The global opportunity of high food and energy prices remains, despite prices easing a bit, giving the country’s export sector another important opportunity. A drought has affected the agro-exporting sector while delays in building a pipeline connecting the Vaca Muerta shale field to crucial infrastructure has limited upside gains.
Furthermore, the capacity to develop lithium mining in one of the most productive regions of the world, together with a competitive knowledge economy sector mean a more robust global economy could demand more of what Argentina has to offer, even investing in developing critical infrastructure and promising companies. The value of Argentine assets have rallied substantially recently but remain dirt-cheap. The expectation of a change in government swapping the Peronists for the supposedly market-friendly Juntos por el Cambio coalition should lead to further appreciation in Argentine assets.
The opportunity is there for the taking. For some, Argentina will grow regardless of the incompetence of its leaders. Another theory is that the country is uncontrollable, regardless of who is in charge. Yet, a move toward moderation among the leading candidates of both coalitions and a consensus regarding certain key issues appear in the horizon, as long as the hardliners are effectively pushed to the outer bounds of the ruling coalitions.
SOURCE: www.batimes.com.ar