The five areas where Sergio Massa’s fit will have an impact

This week, Economy Minister Sergio Massa called for a budget cut for 220 billion dollars with the aim of reducing the budget deficit and approaching the 2.5% of GDP target set by the agreement with the Monetary Fund. As of today, Argentina is deviating from the target by 0.7 percentage points.

That setting, along with the removal of subsidies and the increase in tariffs, they will impact activity and purchasing power for the rest of the year and will also impact inflation, which is expected to close this month above 6% with no forecast of an excessive decline between now and December.

Added to this is the impact of rising interest rates, the exchange rate gap and restrictions on imports used by the government to take care of reserves, in a context in which the Central Bank is unable to add foreign currency.

These are the areas that will be particularly affected by the adjustment.

Exercise

The first half of the year closed with an increase in economic activity of 6.4%, which already places it above the pre-pandemic level but still below the peak reached in 2017.

But for the rest of the year, forecasts indicate a marked slowdown. According to private consultants, 2022 will close an increase in gross product of between 3 and 3.8%.

“The new import restrictions together with the uncertain replacement costs caused by uncertainty about exchange rates and the parallel increase in dollars will generate poor performance of goods. In any case, a slightly more favorable trend in the Services sectors would counterbalance the trend in the general level “, affirm da Ecolatina.

“If economic activity were to maintain the level of June 2022, the economy would grow by about 5% in the year, therefore a negative advance in seasonally adjusted terms is estimated for the second half of the year“, they point out.

Inflation

The rate hike will hit inflation for the rest of the year. For Equilibra, “the direct impact of the entire tariff segmentation process will be almost 2 percentage points additional to general inflation, of which one percentage point would be added to the inflation of 2022 and the rest to that of the first quarter of 2023 “.

“The major obstacles to foreign purchases limit the expansion of the internal market through a reduced availability of production factors and goods (in quantity and variety) for production and marketing and exert pressure on prices. Looking at the second half of the year, the main consequences of this measure will be a lower level of economic activity, higher inflation and greater pressure on the exchange rate gap “, says Ecolatina.

salaries

The wage index sit increased by 4.8% in June, below the 5.1% increase in inflation that month. Those who lost the least were the wages of private workers, followed by the wages of civil servants and finally the income of non-registered employees.

For IDESA, «the acceleration of inflation during 2022, and especially in the last months of the year it is reversing the slight improvement in wages last year. In other words, Argentina is going through a cycle of stagnation with high inflation and a very negative impact on real wages. The same happens with other benefits, such as pensions, although the government wants to compensate for the losses with extraordinary bonuses “.

Public Works

Within the cut set by Massa, the Ministry of Public Works will lose 20 billion dollars. There is also 50 billion dollars which will be cut by the Ministry of Territorial Development and Habitat, which includes the items to finance the Procreate slowly.

Advisory firm LCG expects the primary deficit to have a floor of 3.2%. Achieving the 2.5% commitment agreed with the IMF “requires a real annual adjustment of 11% of net subsidy spending. Given that there are items of expenditure that have their own inertia, such as wages or those that adapt to mobility, the cut on the “rest of the expenditure” should be greater: 24% real per annum in the second semester.

Education

The Ministry of Education has had a cut in its games 50 billion dollars. Thus, Infrastructure, Habitat and Education are self-explanatory 54% of the total snip to public spending.

The reduction in education mainly affects the Connect Equality plan, which is leaking 30 billion dollarswhich is to say that the state will have 180,000 fewer computers to be distributed among the students. Other 15 billion dollars they will no longer be applied to the Nursery Strengthening Program and more 5 billion dollars a Infrastructure and equipment.

AQ