How is the economic traffic light?

If one turns on a traffic light to the changes President Javier Mili's administration has introduced to the economy over three months, red will appear exclusively. However, if you start to separate the data, some reds become yellow, some yellows become green, and there are also unifying greens.

For this exercise, economists were consulted along with Elizabeth Basicalupo, Head of Macroeconomic Analysis at Abeseb; Marcelo Elizondo, expert in foreign trade and head of the Department of International Business Development (DNI), Damian de Paes, microeconomist and director of Focus Markets, created this panorama.

In red

The two major impacts of monetary adjustment and public spending are on household activity and purchasing power.

So far during Miley's tenure, the focus market has recorded a 10.4% drop in mass consumption, 20% in retail sales, 12% in industrial production and 4% in capacity utilization. This directly affects employment (data for 2024 not yet available).

In January, the monthly indicator of economic activity (Emae) fell 1.2% month-on-month and 4.3% year-on-year. In 2024, Abeceb predicts a 3.5% drop in GDP with a better second semester.

At the local level, according to the Córdoba Trade Federation (Fedecom), retail sales of SME businesses fell by 46.1% in the first quarter (with an average accumulated variation between each month of 20.9%).

According to De Baez, the loss of purchasing power of Argentina's income in pesos is “huge”, although there is a slight recovery in its value in dollars, which explains the massive influx of Argentines to Chile during Holy Week (the same thing happens with Paraguay).

Part of this was the result of a strong adjustment due to the 38% liquidation of pension costs, which included a cut in national-to-provincial transfers; Payment adjustment from this month; It halted payments to Commesa, the operator of the wholesale electricity market, and halted national public works altogether (in January, construction activity fell 21.7% year-on-year, according to Intech).

In March, auto production fell nearly 30% year-on-year.  Traditional industries are very slow in their recovery.  (Voice / Archive)
In March, auto production fell nearly 30% year-on-year. Traditional industries are very slow in their recovery. (Voice / Archive)

In yellow color

The international reserves of the Central Bank of the Republic of Argentina (BCRA) are now US$28 billion, up from US$22 billion at the start of the Miley administration. During this period, it added US$ 12,120 million, whereby net balances are still at a negative level of US$ 3,300 million according to different estimates, but they will move into positive territory between April and May.

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The monetary base ended at 2.2% of GDP last month from 4.3% of GDP in March 2023. This contraction helped control prices, but deepened the recession and stagnated consumption.

The stability of the exchange rate and the trade surplus, on the other hand, in the first three months of Javier Milli, there was an increase in the debt with suppliers, which was US$ 9.5 billion (according to the consulting firm Abezeb) and US $ 9.2 billion (according to the economist Salvador Vitelli). However, imports have a payment schedule (25% paid in four installments every month) that is more predictable than what was in place under the previous government and the market expects a default this month.

Inflation, which was initially very red in the world, has accumulated to 70% in management so far, but continues to turn yellow. Focus Market projects 12% to 13% in March, 11% to 12% in April, 10% in May and 7% to 8% through the end of the year. According to Abasep, in December this year, year-on-year inflation will be 168%, an improvement compared to the 200% forecast two months ago.

These inflationary levels call into question the stability of the exchange rate, but Miley has ruled out accelerating the official rate of devaluation of 2% per month.

In green

Macroeconomics looks very green. In February, the national government recorded a second fiscal surplus ($338,112 million) and a primary surplus ($1,232,525 million). Thus, for the first time since the beginning of 2011, in a positive first two months it accumulated a surplus after interest of almost 0.2% of GDP. In March, collections rose 230.6% year-on-year in nominal terms, marking a 15% fall that dampens the inflationary effect (compared to 11% inflation in March) and raises doubts about whether primary and fiscal surpluses will be maintained.

The central bank's wage loans fell by 6.8% in real terms (although they grew, they were lower in peso terms).

Financially, country risk started the year at 1,938 points and was around 1,300 points on Friday (from MP, JP Morgan), with the highest recent level recorded at 2,719 points on October 5, 2023.

The transaction gap has narrowed to about 14%, from 152% at the start of the administration. This, in turn, puts dollar futures at $890, down from $1,120 in December 2023, defying expectations of a short-term devaluation. Additionally, Merval grew by 47.6%.

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The trade balance also showed a surplus. In the first two months of US$ 10,928 million (up 7.5% compared to the same period in 2023) and imports of US$ 8,706 million (down 16.3% year-on-year due to economic slowdown and shortage of dollars), the positive balance was US$2,222 million in the first two months of 2023. $261 million was negative. Throughout 2024, individual estimates speak of a trade surplus of USD 15 thousand.

Key now is the liquidation of the soybean and corn harvests, whose strength will last through August. According to estimates from the Rosario Stock Exchange, agriculture sold USD 1.5 billion in March (22% year-on-year increase and 61% in the first quarter of 2023). With projections for this year of 50 million tons of soybeans (150% more than in 2023) and 57 million tons of corn (calculated without the effect of leafhoppers), even with an annual price drop of 21% (soybeans) and 33% (corn), exports will be USD 31.3 billion. It is estimated that by 2023, it will be more than USD 6 billion.

The energy sector is also showing green lights. According to the Contactos Energítico Foundation, in March, the Vaca Muerta area (Neuquén) reached new record levels. The number of fracture positions — a technical way to measure activity in unconventional reservoirs — was 1,643, surpassing the previous all-time mark (1,398 fractures) from September 2023. Leader YPF with 40% activity (662 fractures).

Production at Vaca Muerta set a new operational record in March.  (Voice / Archive)
Production at Vaca Muerta set a new operational record in March. (Voice / Archive)

“Macro” is stabilized, when will recovery begin?

The consensus among economists is that the level of activity will “bottom out” in April and a recovery phase will begin between May and June, allowing for a better second semester.

But there is no consensus on what that would look like. According to de Bas, this turns them to letters and symbols: for some the recovery is V-shaped, meaning immediate; In others it is U-shaped, stagnant for a few months without further decline; There are those who believe it will stay at the W, and with subsequent restructurings and declines, there are those who think it will be shaped like a Nike “pipe” with a gradual but sustained recovery.

“We are in a very bad moment. The recovery will not be smooth, it will be sector-specific. At best performance Agri-foods contain it, which affects agrochemicals, inputs, logistics and transportation. Tourism is doing well and there is good news from the energy sector as Vaca Muerta and the Néstor Kirchner gas pipeline export gas. On the other hand, the traditional industry is not going to have an immediate reaction, it will take more time,” explains Marcelo Elizondo.

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Meanwhile, Elizabeth Pacicalupo says that important benchmarks such as sustainable and reliable long-term comprehensive stabilization plan are missing; Financial measures that allow you to stop relying on liquidation; slightly positive real interest rates; Changes in rates by social segmentation and financial strategy.

Even so, he assures: “The turning point will be in April and May. The wage bill is difficult to recover and employment variables lag behind. The key is to improve the quality of the adjustment, which is what the IMF is asking for. Therefore, political agreements and major consensus on structural reforms are the determining factors of what the potential growth rate will be. Investment and technological progress are needed, and this lack of transparency and consensus requires reforms.

In the short term, activity may recover, but in the absence of political consensus, the recovery will turn into growth with macroeconomic stability.

“In the next month and a half everything will be resolved with the 'All Bus Act', the 'May Deal', labor reform, reducing the tax burden, exiting stocks and deregulation of economic activity. But the political class needs to find the necessary consensus to provide a medium-term forecast for private investment from abroad and from Argentina,” explains de Baez.

For the head of Focus Market, even in the current framework, the macro economy can continue to stabilize and control the micro economy, about which he adds: “We have to help the small ones; monotributist, we must raise the limits and scales, give him oxygen to survive; And the self-employed, a service provider and the informal sector, as he is not comfortable growing; For MSMEs, which represent almost 80% of operations, perceptions of profits and gross income can be removed, and SMEs can also remove their perceptions of quick repayment of capital so that they add technology. and generate employment. and function. Now that the macro is settled, we need to start thinking about the micro.

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