After the collapse of economic activity in March in a scenario of fiscal adjustment and salary deterioration due to the acceleration of inflation, In April the pace of decline slowed, and some green shoots began to emerge. For some economists March could be the floorwhile others still have doubts.
The INDEC reported that economic activity contracted 8.4% in March compared to the same month last year, marking five consecutive months in the red, and had a contraction of 1.4% compared to February, with which in the first quarter of the year accumulated a decrease of 5.3%.
Despite the collapse of the economy in the first three months of Javier Milei’s government, the Minister of Economy Luis Caputo stated at the IAEF Congress: “I am optimistic, I see a V” in terms of economic recovery. However, the Analysts predict that the economic recovery will be slow and will hardly take the form of a rapid V-shaped rebound. as the government expects.
Economy activity: first green shoots
A survey of Orlando Ferreres Economic Studies Center threw that In April, economic activity showed a drop of 3.1% compared to the same month last year, showing a strong deceleration in the rate of decline compared to previous months. Thus, in the first four months of the year it had a contraction of 6.3% year-on-year. The encouraging data is that economic activity verified an expansion of 1.1% against March.
Of a total of 11 sectors surveyed, 4 fell compared to April of last year, 2 remained stagnant and 5 grew. Construction with a collapse of 22% year-on-year, Financial intermediation (-13%), Industry (-10%) and Commerce (-6%) are the areas that led the declines in April. In contrast, the most dynamic sectors were Agriculture (67% year-on-year) and Mining (9%). They are followed by Social and Health Services (1.7%); Public Administration and Defense (1.4%); Electricity, gas and water (1%); Transportation (0.3%) and Real Estate Activity (0%).
The consultant explained that “The year-on-year fall showed a significant slowdown, affected by the agricultural context, which begins to compare the data from the second quarter with those from the worst moment of the drought, reflecting very high growth rates.”
Economic activity fell 3.1% year-on-year in April, according to measurement by the consulting firm Ferreres
In that sense, he indicated that “the effect of the low comparison base also affected related sectors, such as wholesale trade and transportation,” while “another dynamic sector of the economy is Mines and Quarries, driven by production of oil and gas,” he noted.
Economic crisis: is the worst over?
The consultant EconViews He maintained that “the recession is fierce, but we believe it has already reached its floor” in March. And he argued: “April showed signs of rebound. There are good signs for the industry, which could at least slow down its decline. Crude steel production rose 44%, after a complicated March between the closure of Acindar plants and conflicts. unions. Car production also changed its trend, with a monthly increase of 13.8%. The deseasonalizations with the extra-long holiday cast a shadow over the numbers, but the direction seems to be positive.
In this framework, the consultant evaluated that “Early data, the promise of a credit recovery and the fall in inflation lead us to think that we have already hit bottom in March.”
With the same diagnosis, the consultant Ecolatina emphasized that “the advanced indicators of economic activity showed a slight improvement in April, the majority of the sectoral statistics surveyed showed a moderation in the year-on-year falls.” Thus, he estimates that ““economic activity would have hit its floor in March to begin a gradual recovery since April, helped in part by the arrival of the thick harvest.”
At the same time, Camila Antequera, analyst from the consulting firm Ferreres commented that “it is not possible to know exactly if the economy hit the bottom” although he stressed that “the April data showed improvement, and for nowthe signs point to the fact that the worst result in terms of activity occurred in March”.
In tune, the economist Federico Glustein argued that “It is not possible to say whether it has reached a bottom because there are signs that the fall has stopped, but the economic context is complex.”“In any case, he believes that “March could have been the last month of a sharp drop in activity.”
Agriculture is one of the sectors that in April began to help boost activity
Instead, Christian Naudan analyst at ACM, commented that “Although sectors linked to the external market, such as agriculture and oil and gas production, mitigate the negative numbers that we have been seeing in activity, we believe that they are insufficient to reverse the downward trend.”
“There are indicators that allow us to anticipate that activity shows some monthly improvements, especially in sectors oriented to construction and retail sales, although in year-on-year terms it continues with negative numbers, although slowing down.” And he cited as an example that “the Construya Index, cement dispatch, iron and steel production, VAT, presented monthly improvements in April, although in year-on-year terms they continue in the red.”
According to his vision, “with falling inflation, as expected in May, we will see increasingly smoother falls for the current month and the one that follows, but they are still insufficient to be able to reverse the negative numbers we have had until now.” “.
In tune, the consultant LCG He assured that “some activity progress indicators for April are beginning to show a slowdown in the fall, although they do so from very low levels” and considered that “this is good news since it could be interpreted as a floor, but it will have to be confirmed.” as the months go by.
The coming economy: will there be a “V” rebound, as Nicolás Caputo says?
The Government trusts that the drop in inflation to one digit, the fiscal surplus, and the reappearance of credit will drive the V-shaped recovery of the economy, that is, after the sharp fall, a rapid rebound. But the Economists foresee an improvement in activity slowly, with a pipe shape – where the recession lasts and the recovery is delayed – or in a U shape, with a longer recession but prompt recovery)
EconViews noted that “from now on, we expect a slow recovery, although more similar to the Nike pipe than to a V” .
Caputo said at the IAEF meeting that he expects a V-shaped economic recovery
“We see a slow recovery in real wages, to the extent that inflation settles at around 6% monthly and the joint agreements are signed one or two points higher. Although they are far from recovering what was lost in December and January, those months They will have been the floor for income. Taking the INDEC index, it is seen that real salaries recovered 10% since January, they rose 1.1%, and it is expected that the trend will continue to increase,” they predicted.
In addition, he argued that “the Fobierno is betting that the reappearance of credit will drive the recovery” although “for now it is not reflected in the data on loans to the private sector (-1.2% in April versus March) but it is possible that it will grow with the reduction of inflation and the interest rate”.
Glustein He agreed: “the greatest recovery process is going to occur only at the end of the year, beginning of next year, above all, considering that the increase in rates is missing, therefore, a greater adjustment.” In this framework, the economist said that “I don’t see it going to happen in a V, or in a U, but rather, a pipe, a very slow recovery.”
In tune, Camilo Tiscornia, director of C&T Economic Advisors, stated that they do not expect there to be a very rapid recovery, because “real wages are very depressed, people have to allocate money to pay for services.” And he stressed that “The speed will depend on the political side, which maintains a clear horizon, and on the recovery of credit.”
“It is a very important factor to what extent credit is arriving to finance the private sector. When installments were offered in the hot sale, there was a very good reaction from people, meaning that there is a possibility of boosting the consumption part that “It is very punctured but in general terms we do not see a very rapid recovery of activity.”
Looking ahead to the coming months, the consulting firm Ferreres said that “we do not expect a rapid recovery, although the sectors most oriented to the external market will continue to push positively, while sectors such as industry, construction and commerce could begin to show some improvement to the extent “that the decline in inflation is consolidated, a recomposition of income begins, progress is made with exchange rate unification and private credit is reactivated.”
Due to inflation and wage deterioration, consumption collapsed and is expected to continue to weaken.
For its part, the consultant LCG stated that “We still have not identified a clear driver that can V-shape a recovery in the short term.” And he explains that “this type of growth typically occurs after a supply shock or, in the face of a drop in demand, when investment pulls strongly. We do not believe this will happen immediately, because we understand that the ‘wait’ decision still prevails. and see’ (wait and see),” he stated.
In that sense, the consultant asserted that “the Retraction of domestic consumption, a real exchange rate moving downwards and the delay in consolidating the structural reforms promised by the government are all factors that threaten this.“. Likewise, he predicts that “consumption will continue to weaken.” And he added that “we must expect new corrections in relative prices, postponed to achieve a more accelerated disinflation in these months, with an impact on activity.”
For the economist Joaquin Marquedirector of UG Valores, “although in some sectoral economic reports a slowdown in the fall in economic activity is beginning to be seen, it will be essential to quickly promote an increase in real wages, which drives consumption, benefiting the sectors most affected by the recession”
“To accelerate the recovery, the government and the BCRA must pragmatically shift their contractionary monetary and fiscal policy towards a policy of investment incentives, with fewer exchange restrictions and lower taxes. that generate a path of development in medium and long-term investments. That is why the Executive considers legislative approval of the basic law and tax law essential,” he stated.
At the same time, Lautaro Moscheteconomist at the Freedom and Progress Foundation, stated that “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, the credibility of macroeconomic stability”
“For the first, we have seen in the last week great progress in cleaning up 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 Congressgiven its content that solidifies the change in direction of the Argentine economy,” he concluded.
