According to recent data, the government has become convinced that the economy is in a recession based on several key factors. The deficit has decreased, inflation signs have decreased, and there has been a collapse of private credit. These indicators reflect the impact of the shock plan on consumption, activity, and investment at the beginning of the year.
The Minister of Economy, Luis Caputo, mentioned that when it was reported that inflation was 30% in December, 30% in January, and then 20% in February, they predicted that the 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 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 the acceleration of inflation and a policy of negative rates that led to a large reduction in the use of fixed terms by banks for lending. Javier Milei, Minister of Economics, noted during his inauguration speech that challenging times were ahead but there was hope for improvement. However, recent data showed otherwise as there was a 5% year-on-year fall in economic activity in December alone. There were significant drops in construction and automotive production along with layoffs and suspensions due to diminished sales and commercial debts.
Different sectors such as 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 an contraction