The decline in sales and the blow to consumption exacerbate the recession

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In the first quarter of this year, retail sales decreased by 0.4% compared to the same period in 2022. CAME data confirm that, amid the inflationary leap and the loss of purchasing power, consumption is retreating and thereby pushing the economy even further into recession.

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For this year, economists expect the economy to decline by at least 4%, as reported by clarion Yesterday. The data for the first quarter allow us to point it out the country is already in a recession, amid a contraction in activity promoted by drought, import barriers due to a lack of dollars and the impact of inflation on consumption.

“In view of the negative effects that the drought is generating and an accelerated deterioration in purchasing power, we understand that the current level of activity will act as a ceiling for the current year, in which we expect the annual decline to accumulate an average of 3.7%“, indicated the consultancy firm LCG.

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In February, the latest data known so far, real wages lost 2.5% and show a drop of 9.8% from the level they had in February 2020.

“Beyond a possible improvement in the sector in the short term associated with the greater increase that private consumption and finance could have in the election period, prospects are not favorable in the short/medium term due to various factors”, underlined by Claves Información Competitiva.

And they stressed that the chances of this improvement over the course of the year are slim. the dynamism of wages will continue to be limitedlimiting domestic demand. In the same sense, the lack of dollars in the economy which is reflected in scarce international reserves means that there is no room for growth in domestic spending and wages above inflation and the dollar.

So far this year, the decline in consumption is being felt in retail sales and especially in the clothing and footwear category, which it shrank 7.5% year-on-year in March, according to data from the Argentine Chamber of Commerce. In this way the consumption of this category was localized 24% below pre-pandemic levels.

In 2022, despite the year ending with 94.8% inflation, consumption was sustained while Argentines went out to consume given the prospect that the value of the peso would continue to fall. But this defensive behavior it started getting cut this year because wages lag behind inflation.

This was stated in a report by the Institute of Applied Economics of the Uces consumption in supermarkets and supermarkets is practically at the same level as last year, while the demand for durable goods continues to grow strongly (especially cars and motorcycles).

“Construction activity is starting to show signs of stagnation (and even some decline), unlike the expansive momentum experienced since mid-2021,” they said.

Another sign of the deterioration in consumption is the decline in the use of credit cards. In March, operations with these plastics reached $2,443,898 million, a nominal 5.2% increase from February, well below inflation for the month which reached 7.7%.

The factors that explain the lower use of credit cards indicate a lower offer of installment payments by banks due to the increase in the cost of loans. Added to this is that “the amount of plastic in use is decreasing due to increased credit risk and, last but not least, credit limits that do not grow with the frequency and in the amount necessary to absorb the increased expenses”, explained Guillermo Barbero, partner of FIRST CAPITAL GROUP.

“The economy is showing more and more warning signs. The drought is having a direct impact on productive activity but more fully on the availability of dollars,” UCES said.

“It is possible to expect an intensification of foreign exchange and import controls, as well as increased pressure on the private sector to defer payment of private debts and imports. The imbalances are piling up and it is unclear how or who will be able to fix them. Meanwhile, the passage of time promises to increase economic volatility amid mounting political uncertainty,” they said.


Source: Clarin

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