Argentina—President Macri’s fate rests on economic turnaround

President Macri’s popularity has taken a significant blow ahead of the October election as fiscal austerity and interest rates of 45%—both aimed at restoring financial stability—have pushed the economy into recession. Higher tariffs on electricity and transport, elevated inflation, and a slowing economy have driven consumer confidence to its lowest level since the 2001-2002 economic crisis. Businesses are also struggling—industrial output contracted 15% y/y in December.

Unions have begun protests as wages fall behind rising living costs. The government has offered temporary corporate tax exemptions, suspension of overtime payments, and shorter work periods in a bid to improve corporate balance sheets and save jobs. But companies are still recording large losses, which increases the likelihood of job cuts and mass protests. Further, there is little more the government can offer given the tight fiscal measures needed to comply with the IMF and secure financial stability. 

But improvements in financial stability—the peso has stabilised, and inflation is trending lower—often presage an economic recovery. Meanwhile, above average rainfall should boost agricultural output (50% of exports) and provide a much-needed boost to growth ahead of the upcoming election. A stronger economy would significantly improve President Macri’s chances of winning in October, boding well for stable and business-friendly policies that facilitate increased Australian exports.