There are at least
three pieces of information
that convinced the Government that the economy began to go through recession.
These are the
reduction in the deficit
, the signs of
a decline in inflation
of around 20% and the
collapse of private credit
These indicators, among many others, began to reflect the impact that the
shock plan had on consumption, activity and investment
at the start of the year.
"When they told us about 30% inflation in December, 30% in January and 20% in February, we said that
people were not going to validate that increase,
and they are doing so. There were prices that have even fallen in nominal terms," The Minister of Economy, Luis Caputo, said in the last few hours, suggesting that
the slowdown in prices would be linked to the fall in demand.
Already in December, the plan designed by the minister for Javier Milei foresaw a
"contractive" path due to the sudden devaluation
, the initial jump in prices (25.5% in December) and a strong fiscal adjustment, after which prices would begin to decline. prices.
What was not expected is that they would reach such a high peak
: Caputo expected an accumulated inflation of 40% in the first quarter, and
it would be much higher,
65.5, according to the REM and more than 100% if measured since December to March.
The traffic light of economic activity, red.
Even so, the new
official projection for January is quite similar to the Central Bank's market survey (21.9%).
That month the drag of the exchange shock was felt, but
prices would have moderated in part due to the "chainsaw" on spending on public works and transfers to provinces,
along with the
liquefaction of pensions and salaries
, something that had already been happening and was sped up.
In this framework, the Central Bank revealed a
collapse in peso loans to the private sector in January
of 16% monthly in real terms and 41% year-on-year, affected by the acceleration of inflation and a policy of negative rates (well below the CPI ) that induced an equally strong fall in the stock of fixed terms, that is, the money that banks take and use to lend.
The credit would be reflecting the economy's entry into a recessive phase of the economic cycle
, associated with the high uncertainty prevailing at the end of the previous administration and the correction of price distortions and accumulated macroeconomic imbalances addressed by the new government ( in particular, the strong fiscal consolidation effort currently underway),"
the Central Bank acknowledged
in its latest monetary report published on Wednesday.
In his inauguration speech with his back to Congress, Milei warned that "hard" times would come, but assured that "there is light at the end of the tunnel." The latest data is not encouraging: after accumulating a drop of 1.6% in 2023 , activity fell 5% year-on-year in December due to the impact of electoral uncertainty,
a deterioration that would have worsened
during the transition, Equilibra estimated.
Minister of Economy, Luis Caputo.
In January, meanwhile, the 28.2% drop in the Construya index (which measures the activity of 11 representative companies in construction) and the 16.7% drop in automotive production coincided with suspensions and layoffs due to the stoppage of work. public and the extension of vacations in some terminals due to lower sales at the local level and the commercial debt accumulated with suppliers.
In the tire industry, Bridgestone laid off 50 workers due to the "fall in demand" and the Sutna union responded with strikes.
"The activity level data for the start of 2024 tend to confirm the
depth of the recessionary dynamic
. In principle, in January the
decline in demand for mass consumption goods would have been between 7 and 8% year-on-year
," he noted. the Ieral.
On the other hand, investment fell 16.7% year-on-year in December in terms of physical volume (not counting the effect of inflation), the largest decline since the restrictions due to the pandemic in August 2020. In this case, it reflected the resounding
drop in imported capital goods
(40.5%) due to the exchange rate jump in December, according to a report by Orlando Ferreres.
In this framework, the economists consulted by the BCRA expect a contraction of the economy of 3% and an increase in unemployment of almost 3 points to 7.8% in 2024.
The unknown is whether this recipe will lower inflation
The thing is that if the government fails to accumulate dollars and reduce the deficit, the market does not rule out another devaluation, which would further accelerate prices.