Page 43 - IAADFS World Summit 2025 Special Issue_Neat

INSIDER

Incipient recovery for Argentina as growth in Brazil begins to slow

Buenos Aires based John Gallagher looks at the two biggest economies in Latin America and how the
current situation affects the duty free business.

Only a very brave man or a fool would programs are expected to remain for the peso has made neighboring countries much
make forecasts of what will happen in the rest of 2025. It is interesting to note that cheaper than previous years.
Argentina economy - the short-term and this is the first time in 15 years that an
medium-term outlook are always hard to Argentine government expenditure has Growth in Brazil slows
call, and the long-term forecasts are near been in line with its tax revenues. With the incipient recovery of the
impossible. The biggest challenge that remains Argentine economy being well received
But maybe things are changing – for the Milei government is to eliminate by international financial markets, the
with Argentine President Javier Milei foreign exchange controls – the Brazilian economy has been struggling
celebrating one year in power, there are government is attempting to renegotiate its to maintain the 3% GDP growth it has
some bright signs for the optimists. current agreement with the International maintained over the past three years.
The financial improvements seen in Monetary Fund, a key to eliminate some or Government figures indicate that growth
4Q 2024 continue to be complemented all the controls. is slowing and forcasting a fall to 2% in
by voters’ confidence in the government, After last year’s 3.8% fall in GDP, the 2025.
creating a positive outlook for 2025. government expects a substantial recovery Brazil’s economy has recovered
Additionally, Milei’s government could with consensus forecasts indicating a rise well post COVID-19, with exports and
benefit in the short term from the favorable of 4.0% - 5.5% in GDP in 2025 - growth household consumption driving growth.
relationship of his government with Donald is expected to continue in 2026, but at a However, the re-election of Lula at the end
Trump’s administration. Whether this will slightly reduced rate. As inflation continues of 2022 has not brought any major tangible
mean assistance to renegotiate outstanding to slow, the recovery is expected to come economic benefits to the country. Budget
debts with the IMF or a special deal on from an increase in consumer spending as deficits continue to be a major problem and
tariffs is yet to be seen. real wages begin to recover. The expected although inflation at 4.5% is apparently
Inflation has fallen dramatically from removal of foreign exchange controls in under control, slower growth is becoming a
a horrendous 211.7% inherited from the Q4 of 2025 should lead to an increase in worry for the government.
previous Fernadez government to below private investment and unemployment Private consumption has helped
100% – the recently published figure for should begin to fall. maintain growth in recent years, but
January shows annual inflation at 84% and The economy is clearly in a much interest rates have been increased to bolster
this is likely to continue falling throughout better position than when Milei took over the Brazilian Real, which has shown
the rest of the year. Monthly inflation the presidency. But risks remain – most tremendous volatility over the last six
was recorded at 2.2% in January and opinion pollsters seem to feel that Milei months. The Real weakened to 6.5 Reales
the government is targeting to get below will benefit from his current standing and to the USD at the end of 2024 and the rise
2.0% over the next two months. Leading gain more legislative power at the mid- in interest rates has dampened domestic
economists are forecasting that the annual term elections in Q4 this year. But some consumption. Increasing public debt and
inflation will fall to somewhere between sort of deal with the IMF will have to be fiscal imbalances are beginning to create
35% and 40%, a figure few Argentines reached within the next few months to tensions in the financial markets and if the
would have believed possible a few months enable careful management of the removal government does not address the problem,
back. of exchange controls. More economic growth will decelerate, and the exchange
Milei and his finance minister Luis liberalization and continued fiscal common rate will continue to be volatile.
Caputo have brought stability to the much sense should ensure a degree of stability for Since the beginning of the year, the
maligned Argentine Peso, and it looks the rest of the year. Real has settled into a value just below 6
like this will continue. The official rate The new economic situation has Reales and this stability has ensured that
in mid-February was around 1060 pesos impacted southern hemisphere high Brazilian shoppers have been visiting the
with the grey market rate at 1200. Only 12 season travel patterns in Argentina. Many border duty free shops in Brazil, Uruguay,
months ago, people were forecasting a grey Argentines have abandoned normal plans and Paraguay. Although official figures
market dollar of more than 2000. Milei’s to spend vacation time on the Argentine have still to be published, observers
commitment to a zero fiscal deficit and Atlantic coasts and other resorts in the indicate that Brazilians have traveled
an extremely strict control of the money south of the country and have instead less than in previous high seasons as the
supply has ensured that the exchange rate increased travel by air, road and ferry to weaker Real has made overseas visits more
remains stable. Uruguay, Brazil and Chile. One of the expensive.
Aggressive government cost cutting reasons is that the relative strength of the

43 March 2025 Summit of the Americas