“The key word of the year is stability. The Government seems to be betting on doing everything in its power to avoid new shock scenarios”. introduced by Claudio Caprarulo, from the consulting firm Analytica. Soledad Pérez Duhalde, from Abeceb, agrees that 2023 “starts with the same mandate as the previous one: to avoid a crisis, but now with less room for manoeuvre,” she summarized.
Going forward, the Minister of Economy, Sergio Massa, is faced with a complex scenario and crossed by 5 threats. Or alert, according to the definition of Pérez Duhalde: “The lack of dollars, the volatility of exchange and financial, the financing of the public sector (debt in pesos), the nominal value (inflation) and the stagnation of the economy” .
In general terms, specialists agree with the same assessment, albeit with nuances.“In 2023: 0% growth and 100% inflation”, reads the title of the latest Ecolatina report. clarion raised the opinion of consultants and experts to analyze in detail the economy of this year that has just begun.
1. Inflation
Federico Furiase, of Anker, talks about the acceleration of prices (which rose from 5 to 6%) due to the impact of seasonal increases, but underlines, as a positive aspect, that “core inflation remained at 5.4%”. The negative is that “we continue in a nominal race (prices-salaries-exchange rate-interest rate) mounted on inertia rooted around 101% annualised”.
Gabriel Caamaño Gómez, of Ledesma, points out that this year “inflation will not slow down significantly” and adds that “We can’t even talk about stabilization when we are at these levels”. In this sense, “the government’s maximum aspiration is to achieve inflation of 90-100%. It won’t be easy because inertia already does its job”, adds Guido Lorenzo of LCG.
2. Reserves and dollars
Most believe that it is one of the most complicated variables for the Government. A lower inflow of dollars is expected “because of the drought and because the price of soybeans, while remaining high, shows a downward trend,” says Caprarulo. Sebastián Menescaldi, from Eco Go, he estimates that they will inject $20,000 million less this year than a year earlierdue to “the drought and the cancellation of commercial debts and the need to cancel debt and interest payments with the IMF”.
Caamaño Gómez says that, in addition, “we are paying for the costs of 2022 ‘soy dollars’, which have misaligned incentives and brought forward projected sales for 2023”. According to Furiase, the shortage of dollars “It is the Achilles heel of the economic program”. This economist says that the absence of external financing, the BCRA’s low level of net reserves “limits the degrees of freedom (of the economic group) to revive the economy and lower inflation”.
Lorenzo points out that the dollar shortage isn’t just due to drought. It focuses on widening the gap between the exchange rate and the official exchange rate: “At these levels drive an endless demand for imports that will be difficult to deal with. basically why those who can import into the official dollar have an extraordinary income“, Explain.
3. Debt in pesos
The financing of the public sector is another crossroads that Massa has to face. In this regard Pérez Duhalde distinguishes two aspects: “In 2023, there are maturities of $14 trillion, mostly concentrated before the election. But as a counterpart, 60% of that debt in pesos is in the hands of the public sector,” he points out. Furiase points out that until July “there are Treasury debt maturities with the private sector equal to 1 monetary base, with 64% of those maturities indexed”.
Menescaldi points out that debt in pesos is the risk, “what can trigger a financial crisis is the decision of private individuals stop funding the government and dump the surplus in pesos on the dollar”. To avoid this, “the government will have to continue to provide cores to obtain funding and advance deadlines,” he adds.
4. Economic activity
Connoisseurs believe that the economy is already slowing down precisely because of the lack of dollars. “The second half of 2022 was stagnant and, even more so in the last quarter. So it is possible that between April or May we are talking about a recession or near-recession,” says Caamaño Gómez. Menescaldi argues something similar: “If the drought and the need to reduce imports are confirmed, the economy will be hit hard by supply restrictions. We expect in the year a deterioration in activity of 2.9%interrupting the recovery of the past two years,” he added.
Caprarulo repeats that without dollars, economic activity has a low ceiling: “If we add to this the fiscal adjustment made by the Government, we have two reasons that explain the inversion of the economic cycle since the last quarter of 2022”, he says. . Analytica forecasts slight GDP growth (1.6%),”a low level for an election year”.
5. Employment and consumption
The two variables are closely linked to economic activity. According to Pérez Duhalde, “with GDP growing by 1% employment can hardly grow beyond 1% or 2%, mainly driven by the informal and self-employment sectors”. He also underlined the slowdown in general consumption, due to the drop in purchasing power. “The real salary today is 14% lower than in 2017,” he explains.
The impact on income is unequal: formal employment is better defended and the gap with informal sectors is widening due to accelerating inflation.
In this regard, Manoukian describes that in recent months we have witnessed a stabilization of the unemployment rate in the 7% area, on levels below the pre-pandemic average of 2016-19 (about 9%). But he clarifies that the new jobs “tend to be self-employment and informal wage labour”.
Inflation is spiraling out of control
Accelerating inflation is haunting the economic team. Official concern was voiced last week, when amid soaring prices, the Commerce Ministry stepped up checks at warehouses and supermarket branches and it enforced 770 fines worth $806 million for alleged violations of the Fair Prices program.
These actions, which have caused unease, confusion and some concern in consumer goods companies, coincide with the jump in inflation in recent weeks. In January, the CPI rose to 6% (to the surprise and disgust of the government), which contrasts with 5.1% in December and 4.9% in the previous month. All this despite the multiplication of agreements a set a 3.2% limit on monthly increases around 50,000 products in 17 different categories.
Despite this, private advisors are forecasting for 2023 annual inflation between 85% and 100%provided that a financial or currency crisis is avoided. According to Santiago Romero Manoukian, of Ecolatina, “the government must address the need to avoid new inflation shocks, not just to recover political capital for the elections”.
The economist adds that inflationary pressures will continue in the coming months “despite the price agreements implemented with various sectors under the aegis of Fair Price”. He says that “that could help moderate inflation inertia and expectations, although not substantially”.
Analytica’s chief economist Claudio Caprarulo agrees with most of his peers that “inflation is on a high footing, with a monthly average today close to 6 percent.” He points out that, although it may seem contradictory, “in order to bring inflation down, relative prices have to adjust and that implies further increases”.
Caprarulo says a clear example is the necessary update of public service rates and the monthly increase of the official dollar. “The balance in the world of pesos and dollars is not easy, nor does it regulate the vessels communicating with each other”, he underlines.
“The government’s greatest aspiration is to achieve 90-100% inflation. It won’t be easy because inertia is already doing its job”, concludes Guido Lorenzo, director of the consultancy firm LCG.
Source: Clarin
