Middle East war is Argentina's top future economic risk, central bank warns

Argentina's Central Bank (BCRA) has pinpointed the ongoing conflict in the Middle East as the "principal risk to the future" of the nation's economy. In its latest Monetary Policy Report (IPOM), the BCRA highlighted that while domestic economic indicators like reserve accumulation, reduced country risk, and currency stability are positive, external factors pose a significant threat.

The war, which intensified in late February, could destabilize Argentina's economic plans through two main channels. Firstly, it may lead to a slowdown in global growth due to persistently high energy prices and reduced hydrocarbon supply. Although this could temporarily benefit Argentina by increasing the value of its exports, particularly from the Vaca Muerta shale formation, a global downturn would ultimately harm the country.

“

This risk could impact the Argentine economy through greater external demand weakness or more restrictive global financial conditions.

Secondly, the conflict's impact on international prices, coupled with risks to global trade routes like the Strait of Hormuz, could drive up international interest rates. This poses a direct challenge to the Argentine government's plans to manage foreign currency debt maturities and re-enter international markets. The BCRA noted that global growth forecasts are lower due to energy costs, supply chain disruptions, and financial volatility, factors that are not fully offset by technological advancements like artificial intelligence, which primarily benefit Argentina's major trading partners.

“

The lower expected growth reflects the consequences of the conflict: the rise in energy costs, disruptions in global supply chains, and greater financial volatility.