JP Morgan has downgraded its economic forecasts for Argentina, predicting a deepening of uncertainty stemming from the results of the primary elections (PASO), which it deemed to have triggered the “Milei earthquake” after positioning presidential candidate Javier Milei of “La Libertad Avanza” as the front-runner.
In a report addressed to its clients, the financial institution revealed that “we have revised upwards our forecast for the Consumer Price Index (CPI) by December 2023 following the adjustment of the official exchange rate post-PASO.” Consequently, they cautioned that “we must warn about a scenario of a significant acceleration in inflation compared to the baseline case.”
Building upon this analysis, they elaborated, stating that “assuming a 50% pass-through to prices during the first two months after devaluation, we expect inflation to reach double digits, averaging 12.5% per month in August-September.” Thus, the investment bank anticipates an accumulated inflation rate of 25% in the current two-month period.
Regarding the year-on-year variation, they added that “against this backdrop, we have increased our annual inflation projection from 150% to 190%, while still emphasizing the risk of even higher increases in our forecasts, depending on the highly uncertain outcome of the general elections in October.”
Addressing the response of the Alberto Fernández administration to the primary election results, the institution’s report stated that “the government’s reaction was somewhat different from what we had anticipated,” referring to the 22% devaluation of the official exchange rate. They highlighted that this measure helped narrow the exchange rate gap, but the bank’s expectation is that it will widen again in the upcoming weeks due to the “persistent uncertainty surrounding economic policy and the electoral outcome.”
The worsening of the country’s economic outlook is tied to what JP Morgan terms the “Milei earthquake,” which “marks the beginning of a period of intensified uncertainty.” They estimate that this will lead to further deterioration, likely impacting the general elections in October.