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A real economy that doesn’t recover and a market that no longer trusts

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A real economy that doesn’t recover and a market that no longer trusts

This week, the data did not support the government on two fronts: the “V” recovery was not even “L” and the financial market did not believe that demonetization would last 2% month-on-month.

In terms of economic activity, INDEC published last Friday that Argentina’s economy was 1.7% smaller than in April 2023 – despite agriculture growing by 70.3% – but contracted by a further 0.1% compared to the previous month, March 2024. . Activity fell 6.6%, dampening the positive effect of the agricultural sector recovering from a historic drought.

The main problem is not the statistical data for April (much) but the future outlook: there are no factors that allow us to think about the possibility of the situation reviving. The first data for June showed no signs of recovery compared to May, which was much lower than a year ago:

  • Motorcycle registrations were down 3.7% year-on-year and 16.6% compared to May;
  • Auto production was 40.2% below June 2023 and lost 16.7% month-on-month;
  • Cement supply was 32.8% lower than a year earlier and 7% lower than in May.

This indicates that there is no “V” recovery (rapid recovery), but no “L” recovery, meaning stability at a low base, rather we continue to fall. The government itself acknowledged this in its budget preview released this week: it estimates a 3.5% drop in GDP in 2024, with a 10-point drop in industry and trade.


A direct result of the recession is already recorded job losses exceeding 100,000 in the private sector alone, including layoffs in the public sector led by the national government, but also dragging down provinces and municipalities. Unregistered job loss. Hence, unemployment begins to appear as a major concern in everyday life.

Salaries are also not coming back: depending on the indicator analyzed (SIPA, INDEC, RIPTE), the loss of purchasing power from November 2023 will range from 9 to 14 points in the first months of the year.

In this context, the government stuck to the “party” in the financial markets: stability in legal equivalent dollars (MEP and CCL) and therefore exchange gap, decrease in country risk, rise in bonds and Argentine stocks. This week, however, that hope seemed to have been shattered, or at least.

The trigger was a conference call by Economy Minister Luis Caputo and Central Bank President Santiago Pausilli after the market closed last Friday. Although a week has passed, there are no more details than the announcement: the transfer of debt from the Central Bank to the National Treasury.

The effect of this decision on the public accounts is that the national government will have to expand its fiscal surplus further and at least pay the interest arising from that debt. To do this, the government must increase revenue or reduce expenditure.

The first option does not seem feasible, the opposite is true: when the Basic Law is enacted, the increase in revenue by restoring the fourth category of income tax will be offset by reducing the personal property tax.

As for spending, it has already been cut by 31.4% in the first 5 months of the year and there doesn’t seem to be much room to cut things. If so, where will the resources to pay the interest come from?

In addition to this question, the terms of exchange (popularly known as shares), which Miley promised to eliminate during the campaign, did not receive an answer at that conference, and uncertainty was unleashed: during the week the equivalent of dollars increased between 3.4 and. 3.6%, but they were as high as 6%, widening the transmission gap.

Meanwhile, the Ministry of Economy refuses to reduce or accelerate the monthly rate of demonetization to 2%. In fact, in the budget preview, they projected that the dollar would be worth $1,016.10 by the end of the year. However, the market did not believe him. BCRA and private consulting firms surveyed by the Dollar Futures Market both estimate higher monthly devaluations and a dollar above $1,200 by the end of the year.

As if that wasn’t enough, next week we will see June inflation, which, according to consultants, will cross 5 points, interrupting the government’s record downward trajectory (it was 4.2% in May).

Even as the market faces uncertainty, the government seems calm. In the middle, 47 million Argentines believe the measures will be taken in favor of a large majority.

CB/DTC

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