Has Argentina escaped its economic crisis?
Argentina has shown signs of recovery from its most recent economic crisis, reporting a 3.9% growth in GDP in the third quarter of 2024. Prior to Argentina’s emergence from the crisis, Argentina experienced significant economic downfall during the first few quarters of the year. In 2023, Argentina’s inflation had hit 211%, the highest since the hyperinflation seen during the early 1990s. Some of the contributors to this surge in inflation rate involved policies enacted by the new government under President Javier Milei, including:
The removal of subsidies: To combat the growing budget deficit in the Argentine government, President Milei issued the reduction of subsidies on Argentine utility bills. While this did help reduce the deficit, it caused the rise of energy and transportation prices for the average Argentinian.
Cutting government spending: Milei’s government implemented policies aimed at reducing government spending to ease the pressure of inflation and reduce the budget deficit. This can bring long-term stability but in this case, caused inflation to rise as subsidies were reduced for basic goods and services
There were also lingering issues from the previous administration. One of these concerns was that during the pandemic, the government began to print money to provide economic support to Argentinians. This inevitably leads to an increase in the money supply in the economy, which leads to soaring inflation rates - as more money is chasing fewer goods. There was also a large-scale drought Argentina experienced during this time which had reduced the production in agriculture, culminating in the supply of crops falling and thus a drop in exports and a rise in domestic food prices.
All of this resulted in a rise in inflation from 2023 to 2024 onwards. By this time, much of the Argentinian population suffered from rising costs of living, leaving many to fall into poverty. Additionally, the rising prices lead to a fall in aggregate demand - partly due to higher tax rates, rising interest rates, and reduced government spending - which meant an increasing unemployment rate, since less people were consuming products.
Recently, however, the economy of Argentina has since begun to recover. Many of these policies that once brought short-term inflation have since begun to show some results in turning around the crisis. Argentina has managed to achieve fiscal surplus, a 3.9% increase in GDP, and the appreciation of the Argentinian Peso by 40.1%. Argentina will still need to continue focusing on reducing inflation and propping back up the industries it has fallen short in (such as manufacturing), but these signs may mean a turning point for the economy in 2025.
Sources:
https://internationalbanker.com/finance/why-inflation-in-argentina-is-above-100-percent/
https://www.statista.com/statistics/1320016/monthly-inflation-rate-argentina/
https://www.riotimesonline.com/argentinas-gdp-grows-3-9-in-q3-2024-after-recession/
https://www.americasquarterly.org/article/argentinas-inflation-challenge/
Article written by Rafi Wijayanto | Proofread by Zhangir Zhangaskin
