You play counterintuitive.
The economy in 2022 grew and wages decreased.
It seems that something that does not fit into the sentence if we take into account that consumption is 70% of what is known as the demand for gross domestic product, i.e. the expenditure of individuals, families, companies and governments that drive the creation of value or of wealth in an economy. Basically there are four components that activate the economic system (consumption, investment, public sector and exports) and in Argentina, as in most of the world, the first is the key to everything.
So what if wages lose against inflation in 2022 as reported by INDEC this Friday? [N.E.: subieron 90,4% y la inflación fue 94,8%]and consumption is 70% of demand, why didn’t the economy collapse?
GDP in 2022 would close with an expansion of 5.4% according to the consultancy firm Eco Go.
There are mainly two explanations for this counterintuitive phenomenon.
One is that in 2022 the component increased investment (one of the four mentioned). In the first three quarters it grew by about 15% according to the calculations of Joaquín Waldman, an economist at Equilibra. And according to a measurement by the consulting firm Econviews, today investments are at their highest level in the last twelve years.
In large numbers, investments in Argentina are divided into three parts: construction, machinery and means of transport. The first two are at 90%. In 2022 construction grew by 3.5% (the data was published this week), which would explain the increase in investment and, in turn, that of GDP.
The demand for machinery and means of transport depends on the performance of the sector and its business plans. And in 2022 the sector grew by 4.3%. This would also support the rebound. According to Econviews, investment is already 17.29% of GDP.
What prompted companies based in the country to increase investments in recent years?
It cannot be said that it is because of increased confidence or opportunity in the economy because, as economist Andrés Borenstein recently noted in a tweet, foreign direct investment in 2022 was the lowest since 2003. Not even with Cristina Kirchner’s actions in 2011 was she that skinny.
Why then do companies invest?
To spend the pesos.
The answer to this behavior could be found in the management of the Central Bank. In particular, the increase in the dollar gap. If a company has access to a cheaper (official) dollar, it has more incentive to buy machinery or equipment today than tomorrow. All the more so in a context of equities, higher emissions and accelerating inflation where companies have the possibility of re-evaluating prices since the government announces price control programs before applying them, encouraging speculative behavior instead of anticipating it (which happens in the capital with the repurchase of bonds communicating them on Twitter).
The dollar gap counted with liquidity in recent years has been around 80% with peaks of 130% and 155%. When Alberto Fernández took office it was close to 20%. All of this encouraged the investment and spending of pesos as a way to become dollarized at a lower price than the CCL.
This is calculated by the economist Marina Dal Poggetto, director of the consultancy company Eco Go the gap caused a transfer to importers in 2022 for US$ 40,000 million.
With Sergio Massa this mechanism continues, only with a different allocation method (through the new SIRA).
Inflation also plays to the detriment of wages. Its participation in the turnover decreased to 43.6% (in 2017 it was 50.6%) also as measured by INDEC.
Returning to consumption and why GDP increased in 2022 despite the fact that household income fell by 3.8% according to Eco Go (see infographic), perhaps it is worth considering what Elisabeth Bacigalupo, macro manager of abeceb.com, says.
“Looking at salary and income today represent a small bias. Employment compensated a lot and that’s why the wage bill ended up going up”.
In November, private labor added 45,000 new jobs (mostly single-payer jobs), and continued its upward trend since June 2020, citing a report by economist Fernando Marull. “The civil service also increased by 8,000 positions and has continued to grow as it has in most months since Fernández took office.”
Finally, the number of black wage earners is 5,270,000 according to INDEC (Q3). It’s up 605,000 units in one year.
In 2023 the formula of 2022 will not be repeated. Also because at the end of last year data appeared showing the contraction of the economy. Neither investments (the uncertainty about imports will continue) nor the greater number of workers dedicated to the market would be enough to reverse what appears to be the decline in GDP.
“The activity in December would have been negative, influenced by the greater control on imports and the fourth quarter will close in decline -says Marull-, with a first quarter 2023 probably also negative, it would officially enter into recession”.
Source: Clarin
