They expect activity to slow down in the second half of the year due to a lack of dollars, inflation and rising rates

After a first half of 2022 with rising indicators and record production levels, the economy has started to show signs of growth signs of slowing down and one is expected shrinkage up to 2.4% in the second half of the year compared to the first six months. Analysts agree on this forecast due to the impact of inflation on incomeincreases by rates and the stocks to imports for lack of dollars.

In the first half of the year, the INDEC General Activity Indicator (EMAE) accumulated an increase of 6.3% year on year, mainly driven by trade and industry. Employment, exports and installed capacity utilization in the manufacturing sector also showed high levels. Since July, however, the consultants have begun to observe a Trend changetherefore the growth forecast for the year will be lower, on average by 3.5%.

“The business has stopped growing in recent months, and shows clear signs of stagnation. Thus, July’s record of a seasonally adjusted 0.3% monthly decrease in the series leaves the index below 1.0% from the level shown at the end of last year, “says a report by Orlando Ferreres. For the rest of the year, “there is no room to expect an improvement in the indicators and the adjustment process itself will limit the development of the business“.

More barriers to imports

July was the month when the Central Bank tightened obstacles to payment of imports to cut the drainage of reserves and Martín Guzmán resigned from the Ministry of Economy. The crisis pushed parallel dollars down to $ 350, disrupted sales and accelerated prices, up 7.4%, the highest in 30 years. It also accelerated the replacement of Silvina Batakis with Sergio Massa, along with further budget cuts, rate hikes and rate hikes.

The signals calmed the markets and allowed the BCRA to accumulate net foreign currency purchases of US $ 300 million in 16 consecutive rounds in August, without resolving the tensions. In fact, in August inflation is expected to be between 6 and 7% per month. “The government needs inflation to accelerate to close the numbers, but that generates a greater decline in activity and poverty,” she said. Sebastian MenescaldiDeputy Director of EcoGo.

Likewise, the Head of Ecolatina Research, santiago manukianhe felt that “the outlook for the latter part of the year will be colored by a greater impact of the inflationary acceleration on incomes (mainly autonomous, informal and sectors more dependent on transfers from the state), but also by the adjustment of public service tariffs which affect not only the CPI, but also consumption “.

In his eagerness to avoid devaluation Central was also unable to improve its gross reserves. In two months, it lost $ 5.951 million due to debt payments, foreign exchange sales and devaluation of the yuan. In imports alone, it sold $ 8.2 billion in July, which prompted Massa’s team to do so prepare more checks. Therefore, to reach the reserve target with the IMF, imports would have to be paralyzed for at least a month.

“The political instability resulting from the coalition’s internal problems has resulted in exchange rate instability and a jump in inflation that will sooner or later have a bearing on business. Add to this the stricter restrictions on imports given that the BCRA is unable to reverse the restrictive dynamics of reserves and the cut in spending to reach (or approach) the fiscal commitment agreed with the IMF “, estimates the consultant LCG.

A classic fit

Massa’s expectation is to accelerate the entry of dollars and contain the fiscal red. After trampling on spending in July, it cut last week Budget of 128 billion dollars (0.16% of GDP). Starting Monday, his team will negotiate a plan in Washington to hit a 2.5% deficit this year. The idea is to maintain growth, but the Fund has required a real decline in spending of 7.8% since June to grow between 3.5 and 4% in 2022 and 2% in 2023.

“The Massa plan seems to be opting for one income adjustmentfocused on reducing public spending and restrictions on imports, offering incentives to export sectors to liquidate foreign currency and “pass the hat” internationally in search of financial dollars “, said the Centro Studi Scalabrini Órtiz (CESO) in a report titled “an orthodox turning point in the face of the scarcity of dollars”.

opinions, meanwhile it expects a drop of 1.9% in the second half, with an annual growth of 3.5% for the statistical brake of 2021. “The increase in inflation, the adjustment of tariffs and the restrictions on imports will be factors affecting the business, due to the lower availability of income in the first two or due to the lower availability of inputs or final products, “he said. Alejandro Giacoia, Econview economist.

Finally, another limiting factor for expansion is the increase in the cost of consumer credit and investments from the rate hike, accelerated since August to curb the demand for dollars. “The priority continues to be to support the official dollar hike rate, primary deficit and positive rates as pillars of the IMF, which will coexist with a decline in activity in the coming months and inflation of 90% per annum”, Manoukian concludes. .