Activity data for March indicate that Argentina entered a technical recession: did it hit a floor in April?

Activity data for March indicate that Argentina entered a technical recession: did it hit a floor in April?
Activity data for March indicate that Argentina entered a technical recession: did it hit a floor in April?

The Construya Index registered a 33.2% year-on-year drop in April. EFE/ Juan Ignacio Roncoroni

Economic activity showed a fall of 1.4% monthly. This is the worst decline since December, when the decline was 2.6%. In the short term, a slight recovery is expected but still far from a “V”. On a year-on-year basis it fell 8.4%, according to Indec.

In this way, the economy entered a technical recession as two consecutive quarters of decline have accumulated. The decrease in the first three months of the year compared to the last quarter of 2023 reaches 1.9%, according to Outlier estimates.

In April, the economist Andres Borenstein from Econviews maintained that activity could rebound and rise 0.5% monthly but does not expect a “V” recovery.

Among the indicators available from last month is automotive production, which fell 21% year-on-year (ADEFA) and the Construya Index, which measures the evolution of the volumes sold to the private sector of construction products manufactured by the companies that manufacture them. make up, showed a drop of 33.2%. Regarding consumption, VAT collection fell 8.3% in real terms, car registration decreased 5.9% (ACARA) and retail sales fell 7.3% (CAME). For its part, capital investments plummeted 14.9% and imports, 22.7% (Indec). With a focus on employment, Social Security collection fell 18.3%.

Activity Monitor (GMA Capital)

In this framework, the LCG consulting considered in its last report: “The progress indicators of April begins to show a slowdown in the decline in activity, although they do so from very low levels. This is good news, but we understand that it will have to be confirmed as the months go by. We still haven’t identified a clear driver that can drive future ‘V’-shaped growth. This type of recovery typically occurs after a supply shock or, in the face of a drop in demand, when investment pulls strongly. We do not see it likely that investment will take off strongly in the short term because, we understand, the ‘wait and see’ view still predominates. The approval of the Bases Law may generate some momentum through the RIGI, but without great macroeconomic relevance this year. In any case, it can serve as a spearhead to strengthen the recovery process, but not much more.”

“Consumption will continue to weaken. It may hit a floor due to the marginal recovery of real wages, but it will hardly generate growth in the immediate future. Furthermore, we must expect new corrections in relative prices, postponed to achieve a more accelerated disinflation in these months, with an impact on activity. In parallel, the traction of public spending will continue to confront the government’s objective of reducing the fiscal deficit. We continue to expect a drop in activity of around 4% for this year. This scenario includes the Government’s success in coordinating expectations and stabilizing the economy, such that it implies a recovery in activity in the last months of the year,” he added.

From Outlier, they stated that “the hopes placed on the side of a cushioning affect of agriculture that will be even greater and the traction on the consumption side that can provide a certain rebound, although very low, in real wages and the return of credit. The latter can be important for durable and semi-durable consumption.”

Juan Truffaeconomist at the consulting firm, specified: “The activity in April It should not be below March, but the truth is that it is not a security. Some data does not follow well. We do not see the V-shaped recovery. Not an L either, rather perhaps a V with its recovery leg a little more stretched in time and not so linear.”

With a vision closer to that proposed by the government of Javier Milei, Lautaro Moschet, economist at the Libertad y Progreso Foundation, pointed out: “The speed of the recovery will be related to several factors to take into account. Firstly, the exit from the stocks and its consequent investment incentive in Argentina and, secondly, credibility in macroeconomic stability. For the first thing, in the last week we have seen great progress in the ‘cleaning up’ of the Central Bank’s balance sheet, which allowed the stock of repos to drop substantially in pursuit of greater Treasury debt. While, to achieve the second objective, it will be essential that the Bases Law be unblocked in Congress, given its content that solidifies the change in direction of the Argentine economy.”

 
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