The consumption prospects for 2023 look worrying. The logical uncertainty generated by the presidential elections is compounded by objective factors which condition its performance. The double-digit growth rates that prevailed a few months ago are starting to give way to only moderate increases in all related indicators.
Supermarket sales and credit card spending are taking their toll the triple impact the fall in average household income, the stagnation in job creation and the increase in the cost of bank and non-bank credit. These trends are unlikely to change in recent months, if economic policy continues in its transition to fiscal and monetary adjustment given by the agreement with the IMF.
The consumption of recreational and tourist activities, linked to the middle and middle-upper classes, continues to be dynamic, which in any case is starting to moderate, even marginally. Our first projections reflect this in 2023 consumption would grow by just over one point, slightly below the GDP (1.6%). For the Fund, it would even decrease by 0.3%, reflecting the tougher conditions in the objectives negotiated with the agency for this year, in particular the deepening of the fiscal effort.
In a divided labor market, barely half wages, the formal, unionized and protected part is able to approach inflation, and few, very few, exceed it. In the other fraction, the informal, precarious one, that of the very low-skilled self-employed, as in 2022, the fight against prices will be very unequal.
Therefore, on average, real wages will remain at current levels, with the particularity that unemployment is already at a minimum, thus limiting the possibilities for improvement in the wage bill and therefore in consumption. The punishment of formal, private and public income, while being the most protected, has been systematic over the past five years. Hardly in these last two they could stop falling, but they are still 14 points below the 2018 highs.
Worse luck for consumer credit, down in real terms for five consecutive years (-41%). The only indicator that goes in the opposite direction is VAT collection, which grew by more than 10 real points in the last quarter of 2022, testifying that consumption can be explained not only by the factors analyzed but also by others.
The explosion of digitization of commercial transactions and a significant increase in financial inclusion during the pandemic is likely one of them. A further hypothesis is that, faced with this systematic decline in real income, Argentine households support a more or less continuous process of “clearing” undeclared dollars into the “blue” market to moderate the decline in spending.
Sooner or later, a significant portion of those pesos is formalized, becoming more VAT collection. Unfortunately, the national accounts do not record these behaviours, which would mean underestimating the real levels of consumption. Beyond these effects, it is clear that the economy is to come It’s not the best way to launch an electoral campaign from the governing party.
Minister Sergio Massa’s reading of reducing the inflation rate to 3-4%, as far as practicable, is correct. There will be no ability to recover the purchasing power of household income and, therefore, the electoral competitiveness of the governing party, if inflation continues to exceed 5% per month.
The Fund’s corset inhibits expansive spending policies, sector bonds, “platita” plans. Convincing himself to campaign with cold consumption, and above all convincing his partners (especially his partner) of a coalition, will be a great challenge for Massa. On the way to October in the desert, with little water in the canteen.
Source: Clarin
