Economic data confirm our projections for 2022 and 2023. The financial deficit of the defined benefit pension system is the most pressing issue of public policy in the next 18 months.
The first half of 2022 presented critical messages. First, the comparison of GDP growth in the first six months of 2022 with the same period in 2021 (11.8%) confirms that the economy continues to proceed along a path to recovery. However, activity contracted by 0.5% in the first half of 2022 vis-a-vis 2019, suggesting that this recovery is still fragile. It is a recovery with weak effect on the labor market. Unemployment is down from the double-digit levels during the pandemic, but the informal sector is more than forty percent of occupation, without signs of improvement. Our estimates of GDP growth (6.4%), inflation (3.7%), and NFPS deficit are achievable in 2022. The economy will decelerate in 2023 to 4.9%. The main concern of the rating agencies and financial markets is the cash gap of the defined benefit pension plan, which will reach 1.5% of GDP in 2024. We consider that Cortizo's government will not tackle structural changes to the pension program in the next eighteen months. The next president (May 2024-July 2029) must invest some political capital in advancing this (and other) reforms, a task that requires the support of the legislature, which the current administration does not enjoy.
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