The tightening of the stocks on imports implemented at the end of July, the acceleration of inflation, the rise in interest rates, the exchange instability caused by the resignation of Martín Guzmán from the Ministry of Economy and the lack of dollars generated a cocktail for which the recovery of economic activity will slow down from the third quarter of the year.
The Monthly Estimator of Economic Activity released this week by INDEC showed in June a growth of 1.1% against Maychaining the third monthly rise in a row, and a rise of 6.4% in the interannual comparisondriven by an increase in 15 of the 16 surveyed sectors. The agricultural sector was the only one that experienced a retraction in June, falling 4.9% year-on-year. Thus, economic activity accumulated an increase of 6.3% in the first semester compared to the same period in 2021.
After the good performance shown by the economy in the first half of the year, economists forecast that that positive trail will stop in the subsequent quarter, which started in July. private consultants projected for the third quarter a drop in economic activity that will range between 1% and 3.3%, compared to the April-June period.
Economic activity: the causes that will slow down the recovery
In Ecolatina they anticipate that “this favorable trend (of the economy) will have been interrupted as of July”, a month for which they expect a contraction in the seasonally adjusted measurement. The consultant estimates that economic activity will contract in the third quarter of the year by nearly 1 percentage point compared to the second.
santiago manukian explained to iProfessional that the causes of this retraction are “a inflationary acceleration that is making a dent in income of households and on the possibilities of consumption growth; the a rise in interest rates that makes consumer and investment credit more expensive, and a greater restriction on imports, which limits the expansion of the domestic market in terms of quantities and varieties and makes it difficult to supply the productive network”.
Agustin Berasategui, ACM economist, indicated that for the third quarter of the year the consultant estimates “a drop of 2% compared to the second quarter” and attributed it especially “to the greater restrictions on imports” and “the uncertainty that arose with the departure of Guzmán.”
The tightening of the stocks on imports at the end of June will affect the economy in the second half
The economist maintained that the sharp rise in interest rates “also affects the level of activity”, while pointing out that going forward “some doubts arise regarding the fulfillment of the goals with the IMF, which is one of the fundamental pillars for stabilize the macro and direct economic growth”.
For its part, Sebastian Menescaldidirector of Eco Go, commented: “We are forecasting a drop of 3.3% in the third quarter against the second, due to closure of imports, the increase in the exchange rate gap, the impact of the peso debt crisisY the uncertainty due to the resignation of Guzmán that paralyzed the activity quite a lot”.
On the other hand, he relativized the incidence of the rise in the interest rate: “It has some effect, but it is not a great impact because the level of credit in Argentina is very low.”
The impact of spending cuts
claudio caprarulodirector of Analytica, added to the aforementioned factors the spending cuts in budget items announced by Economy Minister Sergio Massa earlier this week.
“The fiscal adjustment in the items implies less public spending, which affects activity levels. And if there are not, as there were until the middle of the year, bonuses to compensate the most vulnerable sectors, that also directly indicates lower levels of mass consumption,” he stated.
Manoukian agreed by emphasizing “the lower fiscal boost that the public sector will be able to have to encourage economic activity, such as income policies or public works, which are factors that will affect the second half.”
The biggest cut in public spending that Massa announced this week is another factor that will slow down the economy
For its part, the consultancy LCG He agreed that “the instability experienced after the departure of Guzmán should begin to have an impact in the coming months”, so he expects for the second half of the year “wages erosion through, the slowdown in activity will begin to become more palpable”.
“To this will be added the effects of greater regulations on access to dollars for imports, which will have an impact on the production of numerous sectors, and the renewed pressure to achieve the fiscal goal committed to with the IMF, which will mean a significant cut in spending in the latter part of the year.
Shortage of dollars: bad for activity
For Menescaldi, in the coming months “What hits economic activity a lot is not having dollars, the limit is there”. That is why, he said, the government this week announced that it is preparing more control measures for imports of services and luxury goods. “When you look at the numbers, the biggest loss of dollars was partly from goods, and it was partly from services, so something is going to have to be done. The other thing we are seeing is that what is going wrong in August are exports from the agricultural sector, so they are going to have fewer and fewer dollars in the short term, and they are going to have to ration import dollars much more,” he said.
In this sense, an LCG report emphasized that “the economic team has to decide how to solve the shortage of foreign currency that threatens not only with the failure to meet the IMF’s reserve accumulation target but also with the impossibility of sustaining the current level of economic activity. “.
How much would the economy grow this year?
In any case, the consultantss forecast an economic expansion for this year in a range between 2.6% and 4.2%, although they clarify that it is not genuine growth but only to achieve a number similar to the drag left by the economy in 2021. That year, the Argentine economy grew 10.3% year-on-year, with which it actually recovered the 9.9% drop it had registered in 2020 due to the impact of the Covid 19 pandemic, which left a statistical drag of 3% for 2022.
Menescaldi he projected that economic activity will register an expansion of 2.6% this year, and clarified that this forecast is formulated “under the assumption that they manage to stabilize; I am not including a devaluation there.”
The shortage of dollars is another limitation to the recovery of the economy in the second half of the year
In CAM expect for the year a growth of the economy around the 3%Meanwhile in LCG estimate that economic activity will exhibit a rebound of “between 3% and 3.5% annual average which, discounting the statistical drag left by the 2021 recovery, would be equivalent to a fall of 3.3% measured between points”.
At the same time, Caprarulo pointed out that “for the second semester we have the perspective of a slight drop of 0.4% against the first six months in the level of activity that would end with growth this year of 4.2%“.
For its part, Ecolatina expects the economy to grow 3.8% year-on-year on average for 2022.
In this context, the Secretary of International Economic Relations, Cecilia Todesca BoccoHe admitted this Thursday, August 25, in radio statements that “we have problems and we are all aware of inflation, of income distribution problems, but the Argentine economy is growing.”
“This year we are going to grow and it will be the first time since 2010 and 2011 of two consecutive years of growth”the official stressed.