Saturday, December 24, 2022

Argentina’s World Cup bump

Bloomberg New Economy

Argentina's dramatic World Cup win last weekend not only gave the country a long-sought third title, but also opened a period of rare popular euphoria that could translate into positive expectations for a crisis-prone economy. 

Such expectations however may be misplaced. Experts agree that mood bumps like this typically don't have a massive impact on aggregate figures. Our colleague Augusta Saraiva recently reported that while Argentina was better placed than France to reap the economic benefit of winning sports' most precious prize, the impact is likely limited to an extra 0.25 percentage point of economic growth in the two quarters following the tournament.

Officials in Buenos Aires agree the triumph will probably add only a minor boost to growth, thanks to increased consumption.

Fans of Argentina gather at the Obelisk in Buenos Aires to celebrate winning the FIFA World Cup against France on Dec. 18. Photographer: Luis Robayo/AFP

This week in the New Economy

But regardless of the measurable impact of the win in a country were football is followed like religion, the World Cup victory adds to an incipient improvement in economic mood as the country approaches presidential elections set for October.

Part of that brightening is tied to some recent good news outside the world of sports. The nation's economy is expected to grow over 5% this year, November's monthly inflation data was the lowest since February, and the International Monetary Fund's board just approved the latest revision of the country's $44 billion program. 

Of course, Argentina's macroeconomic framework continues to be unsustainable, with annual inflation close to 100%, interest rates at 75%, the country locked out of international credit markets and multiple exchange rates complicating day-to-day transactions.

And an expected slowdown in growth next year will add to the economic hardship, with poverty hitting around 40% of the population. Add to that a fraught political environment ahead of the coming campaign, one exacerbated by Vice President Cristina Fernandez de Kirchner's conviction on fraud charges, and you have a recipe for more instability.

"The strong deterioration of the macroeconomic context, with inflation near three-digit levels, might be generating a higher tolerance for reforms," Pilar Tavella, an economist at Barclays Plc, recently wrote in a research note. "Chances of political change seem high regardless of candidacies."

As always with Argentina, those policy changes can come as fast as a Lionel Messi dribble. 

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