Argentina’s economy on pause, despite March’s year-on-year rebound

RIO DE JANEIRO, BRAZIL – Argentina’s economy showed last March a remarkable improvement compared to the devastating indexes of a year ago. Still, it has been stagnant for two months now, contributing to the uncertainty in the forecasts about the continuity and degree of recovery in the coming months.

According to the National Institute of Statistics and Census (Indec), last March, the economic activity experienced an increase of 11.4% compared to the same month of 2020. The first inter-annual increase after 19 consecutive months of decline.

However, the significant magnitude of growth is given with respect to a shallow year-on-year comparison base, since March 2020 was marked by the first and severe sanitary restrictions dictated by the Alberto Fernández government in the face of the outbreak covid-19 pandemic.

In addition, the official report offers another not very encouraging figure: economic activity fell by 0.2% in the third month of the year compared to February, when the indicator had already recorded a 0.9% decline.

Argentina thus added two consecutive months with its economy in “pause mode”, putting a break in the recovery rehearsed between May 2020 and last January after the “pandemic shock”.

UNEVEN EVOLUTION

Indec data reveal that only half of the 16 activities included in the indicator achieved year-on-year improvements in the year’s third month.

According to the report released this Thursday, the sectors that showed the highest recovery magnitudes were fishing (+59.2 %), construction (+44.1 %), manufacturing industry (+28.9 %), and commerce (+23.3 %).

Meanwhile, the sector that showed the worst year-on-year performance was hotels and restaurants (-22.3 %), which continues to be hard hit by sanitary restrictions.

In the first quarter of the year, the Argentine economy accumulated growth of 2.4%.

UNCERTAIN OUTLOOK

Argentina’s GDP experienced a 9.9 % plunge last year, deepening the recession that began in 2018.

Although forecasts for this year are for recovery, the rebound’s magnitude is increasingly discussed among experts.

The private economists that the Argentine Central Bank consults every month for its expectations report project an increase of 6.4%.

However, many analysts warn that the forecasts could be revised downwards if the covid-19 pandemic worsens even more. The Government is forced to tighten the sanitary restrictions already in force, which is expected to happen in the next few hours.

In April, in fact, after several months of progressive deconfinement, the Executive had to tighten the restrictions in the face of the advance of the second wave of covid-19, which, despite these measures, is still going strong, with a daily record of 39,652 positives this Wednesday.

According to a report by the consulting firm Orlando Ferreres, for the coming months. However, the annual figures will continue to be positive due to the low comparison base; the outlook “is not encouraging”.

“Fears for the arrival of a second wave materialized, and currently our healthcare system is going through its most critical moment since the beginning of the pandemic, and we will surely see restrictions that will impact on activity,” said the consulting firm.

It also pointed out that Argentina’s macroeconomic indicators “continue to present a complex panorama that requires fundamental reforms that are difficult to implement, especially during an electoral year”, when legislative elections will be held.

Similarly, economist Martín Calveira, from the IAE Business School of the Austral University, noted that the acceleration of contagions and “the low efficiency of vaccination” pose an “unfavorable” scenario of “high uncertainty”.

“This scenario of uncertainty affects not only production and consumption but also investment decisions. In this context, vulnerability factors are evident, such as the upward dynamics of prices as of the last four-month period of 2020, exchange rate tensions and a macroeconomy with certain lack of coordination, even more so in an election year,” Calveira warned in a report.