(CNN Spanish) — The Argentine economy is in recession. It has had at least three consecutive quarters of decline, exceeding the technical criterion of two consecutive quarters of contraction. With the data for the first three months of 2024 still unknown (they will be released in June), it is not possible to hold President Javier Milei – who took office on December 10 – entirely responsible for this decline with no end in sight.
But what some economists are already pointing out—such as Fabián Medina, a professor of Economic Sciences at the University of Buenos Aires—is the need to find a stabilization plan that allows a jump in activity to put a foundation on the slide. , which serves as a platform for a later takeoff, if it occurs. “Consumption explains seven out of every 10 pesos of the Gross Domestic Product,” explains Medina. Therefore, if this value is not revived, it will be difficult to expect a recovery in activity.
For the economy to revive, some analysts maintain, it must first stop falling. The Monthly Estimator of Economic Activity (EMAE) that measures month by month the National Institute of Statistics and Censuses (Indec) – a prologue of what the quarterly index can show – has already reported a fall in the economy of 0.5% in January compared to December 2023, as well as a contraction of 0.2% in February compared to January, so the first quarter data would follow the trend at the end of last year.
The question now is when the economy will stop falling and what will happen next. That is, in what way and with what intensity it will grow again, if at all.
Cans of tuna are seen on sale with a 15% discount in a supermarket in Buenos Aires on May 2, 2024. (Photo: STRINGER/AFP via Getty Images).
V, L or dead cat?
According to economists, the behavior of the economy can come in several forms. When the economy falls steadily and, at one point, rebounds with the same intensity, a phenomenon known as a V movement occurs, where each side of that letter means a fall and a rise in economic variables.
When activity contracts abruptly and then remains unchanged at that point for a long time, with no signs of revival, it is known as L-shaped behavior, where the base of that letter represents stagnation.
Finally, it is interpreted as the rebound of the dead cat to an economy that falls sharply and then revives almost imperceptibly, in the manner of an animal that descends from a considerable height and moves slightly after impact with the surface.
The Argentine case
The government is confident that the Argentine economy will recover quickly, that is, a V-shaped scheme, due to the revival of the salary that would have real increases in the future, that is, surpassing inflation, always according to the vision of President Milei and the House Pink.
March has registered a sharp drop in consumption. There was a decrease of 3.8% year-on-year, with a slight growth in the seasonally adjusted measurement. Consequently, the path for a recovery driven by that vector does not seem paved.
Immediately, the question arises about what the resources could be to leverage the economy and whether they will be enough to eclipse the impact that consumption has on the behavior of Argentina’s Gross Domestic Product.
“The recovery is going to take several months, today there are no drivers. Consumption has fallen and with this exchange rate, there is not much room for exports and there is uncertainty about investment,” says Alejandro Vanoli, economist and former president of the Central Bank. of the Argentine Republic.
It rules out a takeoff in the economy as the government imagines, but leaves the door open for a slight, almost imperceptible rebound.
“Hopefully, in a few months investment will recover somewhat, some primary sectors and consumption perhaps via credit, if the decline in inflation is confirmed. I don’t see a V-shaped recovery, I see a timid exit in the third and fourth quarters,” he adds. Vanoli. This could be considered a dead cat rebound or a new category: “More than V, I see pipe-like growth,” she qualifies.
Some economists maintain that the fall of the economy has hit the bottom, and Argentina is at the base of the L heading towards an exit with an intensity still unknown.
Claudio Loser, former director of the International Monetary Fund for the Western Hemisphere, admits that the recession has been very strong and there is fear about the characteristics of the possible recovery.
“I don’t think it’s a V, but we have already reached the lowest part of the recession, with prices beginning to stabilize,” he says.
But he notes that there is still not enough confidence that the government can maintain this scenario. In any case, he estimates that in the coming months there will be some type of increase in activity, helped by the greater productivity of the field.
“That would make us see a fairly clear recovery in the second half, not in a V, perhaps an open U.” This last letter, another of the possibilities that economists are considering, implies constant growth, but less vertiginous than the revival in V.
Mariano Gorodisch, finance expert and El Cronista journalist, agrees that activity will feel some type of recovery in the coming months.
“We are going to see a significant slowdown in inflation, which is why the Central Bank has been lowering the monetary policy rate, and the government’s idea is that the pesos do not go to the fixed term but rather to reactivate consumption. It is good news that they can go down the rate without the dollar rising,” he says.
The question that remains unresolved is under what conditions this economic recovery will be and the consistency of this new economic cycle.
