New data on an economy doomed to recession

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The economy has entered a phase of contraction due to the combined impact of accelerating inflation, the dollar shortage (exacerbated by drought) and the tightening on imports. Projections for 2023 are daunting Private Consultations expect a decline in activity level of between 1% and 5%, and there are few sectors that will be able to avoid the harsh impact of the crisis.

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With annual inflation projected above the three digits, in consumption (a very sensitive variable in election years), the Minister of the Economy, Sergio Massa, is faced with a very complex scenario due to the loss of the purchasing power of the income. Juan Luis Bour, from Fiel, remembers him in January formal salary has experienced an inter-year increase of 88% against inflation of 98.8%. “The informal falls more,” she says.

Bour explains that with accelerating inflation and a government with no room to expand fiscal spending, “it’s very difficult for the economy not to contract.” Fernando Marengo, of Arriazu Macroanalistas, agrees with this assessment. “The problem is that the only way to finance it is through issuance“, points out.

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An issue in this context, adds Marengo, would boost demand for official dollars, a larger exchange rate gap, more import restrictions and higher prices. The government’s dilemma, adds the economist, it is an equation between inflation and recession.If one variable goes up, the other goes down and vice versa. “In between there are nuances and there are mitigating or intensifying factors,” completes Lorena Giorgio, chief economist at the Equilibra consulting firm.

Above all, he alludes to the possibility that Massa will be able to bring dollars into the country (credits from bilateral bodies or with foreign banks, or increase exchange with China, for example) to compensate for losses due to drought, estimated at about 20 billion dollars. “Our baseline scenario is a decline in GDP between 3 and 4.5%, which could be reduced to 1.5 or 2%, if foreign currency is obtained,” says Giorgio.

The fuel for the business is dollars, mainly used to import inputs and machinery. Giorgio contrasts other factors that could ease the trade balance, including the reduction in energy imports due to the construction of the Néstor Kircher gas pipeline, savings from tourism abroad and the increase in some exports. “Even, This year the Central Bank will have $12 billion less than in 2022“, He says.

“A scenario of shortage of dollars is incompatible with last year’s production levels,” introduces Ricardo Delgado, director of the consulting firm Analytica. And he adds that “the government must decide whether it affects the quantities (supply of products on the market) or the prices of imported goods”. Whereby, “there will most likely be tighter control over imports“, He says.

More import restrictions

Analytica expects a 3% decline in GDP, “with an import adjustment of $14.5 billion (-17% from last year) and a loss of net reserves of approximately $3.7 billion.” The data confirm, once again, that the recession is not enough to curb the rise in prices. “Inflationary inertia already works automatically,” interprets Delgado.

The rate of remarking deteriorates family income (especially in informal sectors), which contaminates consumption. “Until August 2022, the decline in real wages was limited by the post-pandemic economic recovery. But The year started with 50% year-on-year inflation and ended with 94.8%”, underlines Jorge Vasconcelos, of Ieral, the think tank directed by the economist Carlos Melconian.

The highest rate of price increase continued in February (102.5% on an annual basis) and the March indicator would indicate a new increase. “The acceleration of inflationary momentum has been in recession ever since 49% of workers are not registered or are self-employedand they cannot index their income in parallel with prices,” says Delgado, adding that, in this context, “the best wage policy is to lower inflation”.

An Ecolatina report indicates that the economy in 2023 will be hit on multiple fronts. And that in “this complex panorama”, the only bet that the Government has left to avoid a greater economic contraction is private consumption. “Public consumption (infrastructural works, for example) will not be a differential factor due to the strong constraints” imposed “by the agreement with the IMF”, explains the consultant.

“The real economy is loosing momentum due to drought, import freezes, falling incomes (and consumption) and election-year uncertainty,” he quotes a study by Abeceb, but clarifies that the impact of the crisis on the sectors is heterogeneous. One of these is industry, which would close 2023 with a moderate increase of 1.4% after growing by 4.3% last year. “The sector that drives the most is the automotive sector”, they indicate.

Natacha Izquierdo, economist at Abeceb, predicts that “oil and gas will be the main object of government for its potential to replace imports and increase exports of gas and crude oil in a context of pressing external restrictions and the shortage of foreign exchange”. Izquierdo plans for this year a 13% increase in crude oil production and a 6% increase in gas production“subject to pipeline construction progress”.

In Abeceb’s sectoral X-ray, a general slowdown in activity prevails at best. For example, for mining, the consultancy firm chaired by Dante Sica forecasts an increase of 2.3% compared to last year as “many investment decisions are postponed pending greater macroeconomic certainties and the rules of the game”. Something similar happens with construction: “Moderate growth of 1.8% is expected,” explains Izquierdo.

Other positive indicators are repeated in items such as household appliances and electronics (expected growth of 2.2% in 2023 against 5.8% last year) and consumption in general, which this year are expected to increase by 1.7% after reaching double digits (9.8%) in 2022 These forecasts depend on the dynamics of the crisis.

Source: Clarin

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