May closed as the best month since the new Government took office. The fiscal surplus was maintained, inflation fell sharply – very possibly to less than 5% – but above all the preliminary data would indicate that the rebound in activity that started in April was maintained. The rebound of the dollar and the increase in the gap was the most disturbing thing of the month, but it was finally contained.
The “activity traffic light” had already shown many sectors in green in April. Not only the countryside due to a harvest vastly superior to last year’s, or energy, which shows significant increases in production. Other sectors also began to show a rebound compared to March. The month-to-month comparison is what really allows us to see whether or not there is actually a reactivation.
The dealer chamber (Acara) provided very fresh the first data for May. The sale of zero-kilometer cars rose 5% compared to April, in what was the second consecutive month of recovery. Special discounts and the return of collateral credit allowed the improvement, with total sales of 34,614 units. The figure, however, is still 13% below May 2023.
“From the value chain we also have a lot to do and that is what we are working on, the automotive companies, with discounts and promotions to encourage sales, and the dealers with bonuses and added value so that customers return, which makes us predict that the second semester will be even better than the first,” he assured. Sebastian Beatopresident of Acara.
Something similar happened with the sale of motorcycles. The improvement was sustained for the second month in May, although the jump compared to April was only 1.6%, and in the year-on-year comparison the drop was much smaller, only 2.8 percent.
The real estate sector is another that is experiencing a strong rebound in sales, after several years with a low level of operations. Exchange stability, the expectation of an improvement in the economy and a lot of contained demand contributed to a significant improvement. In April operations rose 32% compared to the same month of the previous year and it was the best April in the last five years. Now, there is great expectation for the reappearance of mortgage credit.
Industrial sectors also show improvements after a very bad start to the year. Steel production rose 33% in April compared to the previous month and in the case of iron the jump was 42 percent.
Lowering inflation is key for salaries to begin to recover, but it is a very slow process. Meanwhile, it allowed a sharp reduction in interest rates and a recovery of credit in May. It should be a factor to improve sales, for example through installment sales
The sharp drop in the interest rate was another notable fact of the month that passed, although a certain transfer of placements in pesos to the dollar was noted, which came out of its lethargy to be above 1,200 pesos.
Another notable piece of information from May is the strong rebound in bank credit to the private sector. The stock grew almost 12%, supported by the granting of financing to companies, for example via advances and check discounting, and by a notable increase in personal loans, which rose 20% compared to April.
Of course, lowering rates was key to growing credit demand, but it is also a variable that promotes greater activity on the productive side and increases family consumption.
This increase in credit goes hand in hand with the reappearance of installments, something that was especially notable during the Hot Sale mid-month. To the extent that inflation remains under control and rates remain at current levels, logic indicates that the trend in the granting of credit would have to be consolidated in June.
The last two months show clear improvements in economic activity, at the level of consumption and production. But year-on-year comparisons are still very negative and will remain so until the end of the year. There are exceptions, such as the countryside or the sale and purchase of real estate, with strong year-on-year improvements
The sales and production data corresponding to May that will be known in the coming days will surely consolidate two situations: on the one hand, that the economy has already clearly hit a floor, but at the same time that there are many “green shoots” and that increasingly widespread.
Of course, the levels of consumption, wages and activity in general remain very negative in year-on-year terms in almost all cases. The strong impact of the December devaluation and the resulting inflationary spike wreaked havoc on salaries and pensions. Recovering from this impact will take a long time. Not even with a tailwind and a rebound in activity could it take all of 2024 to recover last year’s levels, which were already depressed.
The fall in inflation is central for income to begin to improve, but it clearly will not be enough. Maintaining the fiscal surplus is another main factor. The opening of the exchange rate will also be an extremely relevant variable in the coming months.
For now, the Government remains extremely cautious and recognizes that it is not yet time to do so. “We are not going to take risks,” acknowledged the Minister of Economy, Luis “Toto” Caputo. The practically zero level of net reserves appears as an insurmountable obstacle for the moment to advance a gradual liberation of exchange controls.
There are still no clear signs of availability of fresh dollars. All eyes point to the negotiation of a new agreement with the IMF. But it is unlikely that the organization will be willing to disburse between USD 10,000 and USD 15,000 million so that Argentina can get out of the trap. Much less in the middle of the elections in the United States, the organization’s main shareholder.
The consolidation of the recovery depends on many factors, but there is no doubt that the exit from the exchange rate trap is one of them. If the relaxation of controls is delayed for too long, it could turn against the Government, because doubts would increase regarding the deadlines for the normalization of the economy.
Management problems and inexperience also play tricks on the Government. The danger is that it ends up negatively impacting people’s support levels, which still remain at high values.
The change in the Cabinet leadership and the food scandal about to expire in the Ministry of Human Capital make noise, reflect improvisation and, above all, problems in completing suitable teams. The situation will require greater commitment from the President in internal affairs, although it is clear that Javier Milei He enjoys this stage of international travel, where he is received by great world leaders in politics and economics. But none of that will ultimately help if the home front is neglected.
