Dusting off output gap calculations

ARGENTINA - Report 24 Jan 2022 by Esteban Fernández Medrano

There is no guarantee that an economy with excess capacity will grow. Leaving aside 2020, Argentina has not systematically grown over the last 10 years, despite significant excess capacity. But the currently estimated output gap of approximately 20-24%, in combination with rising commodity prices, in a scenario of a potentially declining fiscal deficit, flags our attention.

​If the government were able to overcome its ideological biases and close a reasonable agreement with the IMF with acceptable fiscal objectives, focusing its political efforts on reverting the financial crisis, starting with an over-indebted BCRA, the market might continue to be surprised by GDP activity. For the time being, however, the government's rhetoric of not wanting to close the fiscal deficit is not helping.​

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