The government is facing a recession due to a combination of factors, including a reduction in the deficit, signs of decreasing inflation, and a collapse of private credit. These indicators began to reflect the impact of the shock plan on consumption, activity, and investment at the beginning of the year.
The Minister of Economy, Luis Caputo, had initially predicted that inflation would be around 40% in the first quarter. However, it ended up being much higher at 65.5%. The Central Bank revealed that there was a significant collapse in peso loans to the private sector due to factors such as high inflation rates and negative interest rates policies.
During his inauguration speech, Javier Milei noted that challenging times were ahead but expressed hope for improvement. However, recent data showed otherwise as there was a 5% year-on-year fall in economic activity in December. There were also significant drops in construction and automotive production along with layoffs and suspensions due to diminished sales and commercial debts.
Different sectors such as the tire industry and investment also presented negative trends and considerable declines in activity, reflecting the deepening economic downturn. Economists consulted by the Central Bank expect a contraction in the economy of 3%, accompanied by an increase in unemployment. The concern remains whether the government will be able to lower inflation without resorting to another devaluation which may further accelerate prices if the deficit is not reduced.