Since this year, private consumption – which represents around 70% of GDP – has begun to move into negative territory, in step with high inflation, the fall in the purchasing power of incomes and lower economic activity which affects almost all sectors.
This negative trend is replicated at a regional level, in practically all provinces and there are indications that the situation cannot be reversed in the first half of the year. It could only moderate starting from the second semester, to the extent that inflation slows down and some sectors of activity show the first signs of reactivation.
This is one of the conclusions of the consultancy firm MAP Economic&Business Advisors which analyzed what consumption behavior will be, an essential variable of economic growth, depending on the different sectors and regions of the country. “Wages and employment are unlikely to recover this year and, on the contrary, a very tepid improvement in income and employment levels is only possible from the fourth quarter of the year,” the report warns.
This panorama would occur, essentially, because throughout the year income would suffer an average decline of 13.8% per year, the analysts of the consultancy firm estimate. “While there may be a few months where wages manage to beat inflation, in broad terms 2024 will be a new year of losing purchasing power. Therefore private consumption would remain depressed in this first part of the year.”
“Although factors such as financing and expectations play an important role in consumption trends, the real mass of income is the main determinantand depends, in turn, on the evolution of real income and employment”.
Recovery by sectors and provinces
On the employment side, no good news will arrive in the coming months, affecting any attempt to recover family spending. In turn, the evolution of the real mass of income will be subject, to a large extent, to the expected trend for the sectors with the greatest weight in employment and activity. For example, income and employment in sectors such as agriculture, oil and gas and mining could show greater resilience, as they are expected to escape the negative trend of declining GDP. According to the Central Bank’s Market Expectations Survey (REM), the level of real gross domestic product (GDP) will be 3.5% less than the 2023 average.
The recovery in consumption levels, however, will not be uniform across the different sectors. Those who have a greater weight in employment, Construction, trade and manufacturing industry, which employ almost 4.7 million people, will be among the hardest hit by the decline in activity, explaining the overall negative trend.
Even at a regional level, there will be no heterogeneity in the recovery. Therefore, the good performance of agriculture would benefit the provinces of Buenos Aires, Córdoba, Santa Fe and Entre Ríos, while the growth of the mining and oil and gas sectors could support consumption in the provinces of Catamarca, Salta, Jujuy, so as in the Patagonia Region.
In contrast, districts with a predominance of regional economies or sectors linked to industry and the production of consumer goods would be more affected by the effects of the recession. In this case, for example, we are talking about the NEA and NOA provinces, where fruit and vegetable production and the production of wood and cotton prevail.
In turn, the Cuyo and Centro regions would be affected by the strong presence of manufacturing activities (automotive, chemical, steel production, machinery and equipment production and food and beverage production), whose performance has recently been influenced by the decline in internal demand.
“At the same time, it is reasonable to expect that consumption in these countries will remain depressed provinces with high rates of public employment, such as Santa Cruz, Jujuy, La Rioja and Catamarca, where around 40% of active people work in public institutions. Finally, a disappointing trend in household spending is expected even in the provinces with higher rates of informal employment, such as Salta, Córdoba, San Juan, Tucumán, Santiago del Estero and Chaco,” the report reads.
Source: Clarin
