In the middle of the desert left by the recession that has dominated the economy since the end of 2023, the most optimistic analysts are starting to see a slight glimmer of recovery which could indicate that The decline in activity is bottoming out.
In this direction, the activity index of Studio Ferreres, the IGA-OJF, recorded in February a drop of 6% and accumulating a contraction of 5.6% for the first two months. However, the positive thing is that in the seasonally adjusted measurement it registered up 0.1% compared to January.
The February versus January rebound is the first positive data after four consecutive months of decline. And it is a product of the diversity between different areas. “In February, the gap between the progress of the primary sectors and the decline of the rest of the economy strengthens. Thus, while agriculture – aided by the low comparison base – and mining present healthy growth rates, sectors such as trade, industry and construction are experiencing a sharp contraction,” the report indicates.
“For the next few months we hope that the current trend will continue and Towards the middle of the year we may start to see some improvement in depressed sectors, if the macroeconomic order that the government is trying to apply is successful and family incomes and consumption begin to recover”, they underline.
In February the best performance was recorded by the agricultural sector with an increase in the annual measure of 18.4%. Industrial production, however, recorded an annual contraction of 8.1%.
Another positive element was the public services segment which recorded progress of 3.4% in February. “This can be explained by the annual growth in electricity production of 11.1% reported by CAMMESA for the second month, in response to an increase in demand of 7.9%, driven by residential demand due to higher temperatures, and with the extra day that February had this year.
Furthermore, mines and quarries recorded growth in the annual comparison of 8.3%. In sector detail, after four months in negative territory, gas production returned to recording annual growth, supporting the strong expansion shown by oil production. The Neuquén Ministry of Energy once again reported an all-time production record for the Vaca Muerta Basin, with annual growth of 17.6% for oil production and 9.1% for gas.
These data would encourage the idea that the recession has already reached bottom, but the issue is not so straightforward. ““We’re close to hitting rock bottom, but we haven’t hit it yet” brand Federico Moll, director of Ecolatina. Although inflation is slowing, Moll warns that it is still too early to resolve the issue. “The tariff recomposition will have an impact on family incomes and this will have repercussions on consumption. In an economy like Argentina’s, it is difficult to imagine a recovery in activity that is not mediated by a reactivation of consumption. Only once the most significant tariff adjustments have been approved will we be able to begin to find that minimum level for the decline of the activity”.
“June seems like a reasonable month to think about finding a fund for the fall.. Mass consumption in supermarkets will probably decline this month or next, and from now on wages will probably start to beat supermarket inflation. This is because mass consumption was the first to change its relative price. Now it’s up to the tariffs and by paying more you have less money available for other purchases”, says Moll.
But he also emphasizes that we need to pay attention to what happens with the prices of durable goods. “They have been growing above the CPI for the last 4 years, now they will start reducing it? In dollars, Argentine products are worth twice as much as in other countries: Will they converge towards the international price and will consumption grow? That doesn’t seem to be the case. If imported goods do not decrease, the recovery of the economy will be slower,” says Moll.
For this year Ecolatina expects a decline in GDP of 3.6% with a recovery of 4.7% next year. “What we see is this In the second half of the year there would be a partial recovery of what salaries and pensions have lost in recent months, but it would not return to the December 2023 level, which was already low compared to the 2017 level.”
“Argentina’s GDP per capita has been stagnant since 2011. The fall is very abrupt and the recovery is much slower. At some point in 2025 we expect to surpass 2023 levels,” says Moll.
V recovery?
The consultants’ estimates indicate that in March inflation would stand at around 12%, in a sequence in which it would be the third consecutive month of decline, although it would continue to remain at very high levels. For Jorge Vasconcelos, of IERAL, “the slowdown in inflation observed in 2024 has more to do with the brake on fiscal emissions than with an increase in the demand for money”.
In this framework, Vasconcelos underlines that “a determining factor in the demand for money is what happens with the real economy and the form that the exit from the recession takes. If the recovery is V-shaped, this will lead to greater real demand for pesos. It is true that spare capacity is high, but given the bias of fiscal policy, other factors are needed, such as credit to the private sector and the population’s real income mass. “These are two variables that could see a recovery, but perhaps not at the pace expected by the government.”
For Natalia Izquierdo, of Abeceb, “In the short term, the activity is likely to draw a “V” in 2024, heterogeneous and at different speedsreaching a minimum level in the second half of the year and then starting to recover, with inflation still very high but decreasing.
From Abeceb they specify that this V is designed with various components. On the one hand, a recovery of the agricultural sector is expected (19.2%) after the drought which will push the sale of agricultural machinery (14.6%), agrochemical products (3.2%) and fertilizers (8%). This sector, together especially with the mining sector (11.1%) and the oil and gas sector Dead cow (oil 7.4% and gas 4.3%) and the knowledge economy ($10 billion) are the ones that will boost the level of economic activity during the rest of the year.
“The return of the V will be all the more sustainable the more competitive the economy is because it would be possible to make growth compatible with the recomposition of reserves. “Promises to honor contracts are more credible to external investors if the country does not suffer from rationing of its reserves,” says Abeceb.
Source: Clarin
