Friday, December 3

The recession in Argentina will be the largest among the G20 countries | Economy

A person walks in front of a business closed by the economic crisis, last July in Buenos Aires.
A person walks in front of a business closed by the economic crisis, last July in Buenos Aires.RONCORONI / EFE

The crisis derived from the pandemic will hit Argentina. The South American country will leave behind 12.9% of its GDP this year, more than any other G20 country – although followed, not too far behind, by Spain and the United Kingdom – according to projections published this Tuesday by the Organization for Economic Cooperation and Development (OECD). The restrictions of the pandemic will wreak havoc on a scenario that already pointed to red numbers in the first quarter, as a result of two years of recession, a foreign debt in default and inflation that continues to skyrocket. The restrictions of the pandemic closed the circle of a black 2020, even more than that 2002 of the crisis of the corralito, when the activity sank 10.9%.

Furthermore, the recovery will not be as fast as the rest of the countries included in the OECD analysis: Argentina will grow 3.7% in 2021 and 4.6% in 2022. At the end of that year, GDP will remain 3.5 percentage points from the pre-crisis level. Mexico and Brazil, the two largest Latin American economies, will also fall in 2020, but both will remain below double digits: they will leave, respectively, 9.2% and 6%. Like Argentina, both countries will reach 2022 without having recovered their pre-pandemic values.

The OECD Chapter about Argentina is loaded with warnings. It recognizes the “timely and audacious” work of the Government to assist companies and workers (with public resources equivalent to 1.5% of GDP) during the shutdown of the economy decreed as of March. But he says that the monetary issue to finance the high fiscal deficit produced by the aid contributes an additional pressure to inflation, at the moment close to 40% year-on-year. “The growing macroeconomic imbalances (…) weigh on domestic demand and limit the pace of recovery, despite a successful restructuring of public debt with private creditors. Employment has fallen sharply. And the monetary financing of the deficit puts even more pressure on inflation and the gap between the official exchange rate and the parallel ”of the peso, higher than 100% in mid-October.

The day after the pandemic, the organization anticipates, Argentina’s fragility will show. The reopening of the economy, which has started with social distancing measures, will be followed by the end of state aid, which will cause an increase in “bankruptcies and job losses.” “This will further add to high unemployment and weaken domestic demand. Inflationary pressures will intensify once strict price controls are relaxed and domestic demand recovers, ”the report says.

To reverse the decline and accelerate the recovery, the economic body urges the establishment of “a credible medium-term fiscal strategy”, focused on improving the efficiency of public spending – while reducing regressive tax exemptions and special regimes – to “Reduce macroeconomic imbalances.” Only in this way, the OECD understands, will Argentina be able to regain investor confidence and access to capital markets, to which access is currently prohibited, pending an agreement with the IMF on the money it owes to the body after the rescue.

Slow recovery in Mexico and Brazil

Beyond Argentina, Latin America points to an uneven recovery and much later than the world average, which by the end of 2021 will have already exceeded the pre-crisis level of GDP. In the region, it will take, in the best of cases, two more years. Despite some exceptions, the general trend will be the slow return to life of the economy: only one of the six countries analyzed by the OECD – Chile – will return to the level of economic activity prior to the crisis before the end of 2022. And it will do so narrowly: in the final stretch of the year after losing 6% of its GDP in 2020 and growing by 4.2% and 3% in the next two years.

Colombia and, above all, Costa Rica will be close to restoring everything lost after the huge bite of 2020. But they will not succeed: the first will rebound 3.5% next year and 3.7% the next after leaving 8.3% this year, the worst in its history; the second will grow a meager 2% in 2021 to accelerate by 3.8% in 2022. The two largest regional economic powers, Brazil and Mexico, will also be far behind: the first will close 2022 still 1.5 points below the level of activity prior to the crisis —after dropping 6% this year and recovering only 2.6% and 2.2%, respectively, in the following two— and the second will be almost three points from that level, after registering a decline of one 9.2% in 2020 and recover at a rate of 3.6% and 3.4% in the next two years.

In the chapter on observations and recommendations, the Paris-based agency believes that Chile will benefit not only from the pull in household consumption – thanks, it says, to the improvement of the labor market in the heat of public subsidies and early withdrawals from pension funds, which will add an additional degree of vigor to consumption – but to the pull of external demand. And it calls not to neglect public investment, especially in education, active employment policies and infrastructures, an eternal pending of the South American country. In the case of Colombia —a country in which almost half of the employees work without a formal employment contract and, therefore, without access to basic social insurance—, the OECD technicians encourage their government to “ encourage ”formalization with“ lower taxes on labor ”.

In Brazil, the OECD highlights the “strong” fiscal and monetary response to face an unprecedented crisis and to avoid greater evils with social spending programs aimed at the groups most affected by the recession. But he warns, however, that the recovery will take time to be fully established and that “some jobs may not return,” and insists on the need for structural reforms that improve productivity, an eternal pending issue not only for the South American giant but for all the block.

The body chaired by Ángel Gurría is tougher in his mention of Mexico, one of the countries in the world that has put on the table a more timid fiscal response to the pandemic, the OECD warns of the “significant increase in poverty, inequality and the gender gap ”that is causing the health and economic crisis. “Macroeconomic policies must promote recovery,” he emphatically states. “Fiscal space is limited, but the severity of the recession justifies intensifying support for fiscal policy,” he remarks. It is a message that has been repeated for months in the analyzes of the main international organizations, but that has not yet found accommodation in the policies of the Government of Andrés Manuel López Obrador.

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