Stagflation hits the economy in the election year

2023-02-26T21:15:24.706Z

Economists anticipate that the slowdown in activity will be more abrupt than expected. While politics goes through 2023 with the elections as the central axis, the economic variables are aligned to enter stagflation, the scenario that combines stagnation with high price rises and that further complicates the government's chances of adding votes. The scenario of slowing down the economy that had been taking shape in recent months took another step last week when INDEC put official n

While politics goes through 2023 with the elections as the central axis, the economic variables are aligned to

enter stagflation,

the scenario that combines stagnation with high price rises and that further complicates the government's chances of adding votes.

The scenario of slowing down the economy that had been taking shape in recent months took another step last week when INDEC put official numbers on the private estimates.

Although 2022 closed with an expansion of economic activity of 5.2%, in the last year there was

a decline of 1.8%.

This leaves the start of 2023 in a scenario opposite to that of last year: while a good part of the growth in 2022 was the consequence of the statistical drag of 3.2% left by 2021, the legacy that fell to 2023 is fully recessive: a

delay of 1.4%.

This led the consultancies to recalculate their estimates and

put stagflation at the center of the scene

This phenomenon combines two negative factors for the economy: the stagnation of activity with rising inflation.

"INDEC reported that December was

the fourth consecutive month of decline;

and if the bad first quarter of 2023 is confirmed, it officially enters a recession, or rather,

stagflation

," said the FMyA consultancy.

"The 2022 GDP left a negative drag of 1.4% for 2023, and with a probable recession starting in the first quarter. With this negative drag, the drought (25% drop) and the continued restriction on imports,

the GDP in 2023 would now fall 2%,

with the risk of a greater recession," says FMyA.

The consultancy Ecolatina anticipates round numbers for the year of the presidential elections:

0% growth, 100% inflation.

The consultant focuses on the fact that one of the main factors that will have a negative impact on GDP will be "

the drop in agricultural production volumes as a result of drought and frost

(early and late)."

The drought will not only affect agricultural production, but also other associated items, such as the food industry, transportation, agricultural machinery, fertilizers, and agrochemicals.

Little scope for action

This means that the Government "will continue to be forced by the limited margins of action to implement

a contractive economic policy (positive real interest rates, cuts in primary spending)

, in a context of evident limits of reality for expansionary deviations in the framework of the goals agreed with the IMF".

In addition,

the management scheme for scarce foreign currency will be maintained

, import controls will continue (or even increase), putting a limit to the potential expansion of production and consumption, via complications in the supply of inputs and final goods. .

The data that is already known for this year is not encouraging.

According to the Industrial Production Index (IPI) of the Orlando Ferreres y Asociados (OJF) study, in January the sector grew 2.9% compared to the same month last year, but in the seasonally adjusted measurement it had a contraction of

1 .5% compared to December.

"For the coming months, our base scenario anticipates

a downward path for the progress of industrial activity,

affected by lower domestic demand, lack of foreign currency, and a very fragile and politically uncertain macroeconomic context," they said in OJF.

So far, the toughest forecast is that of the consultancy EcoGo, which forecasts a 3.1% drop

in GDP this year

with inflation up to November of 105%.

"We calculate it until November because in December we don't know what will happen," said Sebastián Menescaldi, director of the consultancy, referring to the presidential elections.

EcoGo's explanation of why his estimates are more negative than those of his colleagues is linked to "the drought

, the shortage of dollars and Argentina's vulnerability

to the external scenario and debt commitments. With all this, along we must add the political scenario, we are anticipating a drop in the level of activity and inflation that does not slow down, "said Menescaldi.

The economist clarified that the estimate of a collapse of 3.1% of the product "

does not foresee a financial disruption

", so that if this happened the figures would be even worse.

look also