The government has become convinced that the economy is entering a recession based on several factors. These include a reduction in the deficit, signs of a decrease in 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.
Minister of Economy Luis Caputo recently noted that when it was reported that inflation was 30% in December, 30% in January, and then 20% in February, they predicted that people would not accept such an increase. However, they are doing so. The initial shock plan resulted in a big jump in prices and a strong fiscal adjustment, leading prices to begin to decline. Caputo originally expected a 40% inflation in the first quarter but 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 accelerating inflation and negative rate policy leading to reduced fixed-term lending by banks.
During his inauguration speech, Javier Milei, Minister of Economics, warned that challenging times were ahead but hoped for improvement. However, recent data showed otherwise as there was a 5% year-on-year fall in economic activity in December with significant drops in construction and automotive production along with layoffs and suspensions due to diminished sales and commercial debts.
Different sectors like tire industry and investment also presented negative trends with considerable declines in activity reflecting deepening economic downturn. Economists consulted by the Central Bank expect an economy contraction of 3%, accompanied by an increase