Argentine economy continues in decline, amid the ‘shock’ adjustment

The economic activity of Argentina fell again last January, notably affected by the ‘shock’ adjustment undertaken by the Government of Javier Milei and very high inflation that has crushed the demand for goods and services.

As reported this Tuesday by the National Institute of Statistics and Censuses (Indec), the estimator of economic activity, an indicator that serves as a provisional advance to measure the quarterly variation of the gross domestic product (GDP), registered a drop of 1.2 last January. % compared to last December.

The decrease shows some moderation with respect to the 2.8% collapse that occurred in the last month of 2023, but, even so, it confirms the deterioration of Argentina’s economic activity, which since November of last year has exhibited negative monthly indicators.

The official report also reveals that in January economic activity fell 4.3% compared to the same month in 2023, thus chaining three months of year-on-year declines.

According to the consulting firm LCG, the economic contraction was foreseeable “based on the Government’s attempt to correct relative prices and clean up public accounts”.

“Both issues will have a strong impact during the first part of the year”, noted the consultant in a report.

Milei, who assumed the Argentine Presidency on December 10, has launched a severe adjustment plan equivalent to 5% of GDP with the objective of recovering the fiscal surplus this year.

With drastic spending cuts, the effects of his ‘shock’ plan go beyond public accounts. The adjustment of the national government has forced cuts in provincial and municipal administrations and there is no public work, with a severe blow to construction and civil engineering companies.

In the public sector there are layoffs and salaries adjusted below inflation (254.2% year-on-year in January), a situation that is replicated in the private sector, with layoffs and suspensions in some industrial branches.

With depressed income in households due to the losing race of salaries in the face of inflation, consumption has collapsed, forcing many sectors producing goods and services to slow down their engines in the face of a notable drop in demand. .

This scenario can be seen in the details of the official report released this Tuesday: of the 16 divisions included in the measurement, ten productive sectors recorded year-on-year falls last January, highlighting those of construction (-16.9%), fishing (-13.5 %), financial intermediation (-12.6%), manufacturing industry (-11.3%) and commerce (-8.2%).

Agriculture was saved, with an increase of 11.1% compared to January 2023, when the sector was going through a severe drought, and mining, which advanced 5.2%, thanks to the boost from gold, silver and lithium projects.

“With the exception of agriculture and the mining and quarrying segment, the rest of the relevant sectors are showing very considerable year-on-year declines, and the short-term prospects are not very encouraging.”, noted the consulting firm Orlando Ferreres in a report.

According to private economists consulted monthly by the Argentine Central Bank for its expectations report, in 2024 the Argentine economy will fall by 3.5%, deepening the 1.6% contraction noted in 2023.

According to Orlando Ferreres, “The government plan, in an environment of currency shortage, will have recessionary effects in the first months of 2024, and the numbers will only improve when the thick harvest arrives.” of grains from Argentina, around May.

“Thus, a more substantial improvement will only happen if inflation is reduced and exchange controls are eliminated.“added the private consultant.