The Dollar Crisis and Drought Lead the Economy to Recession

The coup, product of


Drought in the field
and the


exchange cimbronazo
was so pronounced that several economists already think that the government's dream of showing two years of consecutive growth -2017 and 2018- could turn into two seasons with data in red: this year and 2019. The concern grow, they say specialists, if the country fails to regain market confidence and relax the monetary tourniquet.

The first example of this panorama was unveiled yesterday, when the


Indec
published the Monthly Economic Activity Estimator (EMAE) for the month of May, which shows a 5.8% year-on-year decline, the highest since 2009. This increase in gross domestic product (GDP) has fallen to one level. similar to December 2015.

The most affected sector is agriculture and livestock, which has collapsed to 35.2%, heavily impacted by drought. In turn, the industry decreased by 1.4% and the growth rate of construction slowed.

These figures provided a framework for the officially launched containment operation. The day before yesterday, almost at night, the Minister of Production,


Dante Sica
and his pair of work,


Jorge Triaca
they received the main industrial unions. The idea was – they said in the government – to list the palliatives that they plan to promote to support workers and SMEs in times of heightened heaviness. Translated: present the measures authorized by the narrow budget margin, taking into account the adjustment agreed with the


IMF

This meeting between Sica, Triaca, Hector Daer and Antonio Calo, among others, was not a coincidence. A day later, official data from the Indec revealed that the Argentine economy had experienced its worst year – on – year decline since the international financial crisis that preceded the economic crisis. collapse of the US bank Lehman Brothers

comment on the data of the Indec, but before the pbading of the figures, the Secretary of Economic Policy, Guido Sandleris, went through the Journalists Hall of the Finance Palace for contain the impact. "This is a very large number," he agreed, on the fall from year to year recorded. However, he pointed out that 5.76 points of 5.8% correspond to the impact of the drought. "Almost anything can be explained by that," he said. However, he admitted that other sectors, such as industry and construction, were not shooting as positively as in the first quarter of the year.

"Paste all the plague together," said Sandleris, who added "financial storm, devaluation, rising rates and country risk and the strike of truckers in Brazil" as other factors that explain the Collapse of the EMAE in May.

The Treasury number two reported that the data will also be bad in June, with a difference in the composition: less impact of drought and more cimbronazo exchange. He also said that it is "not surprising" that the second and third quarters are bad, which will mean entering a technical recession. "We will see a stabilization in the fourth quarter and a certain dynamism," he added. For the government, the economy is expected to grow between 0.5% and 0.6% this year, although Sandleris said that, according to the international scenario, it could be higher or lower. If the rains are normal, the expansion of the activity would be 1.9% in 2019.

"Everything will depend on what happens in the world in two dimensions: how the volatility continues and what is happening with the activity in Brazil, "the Secretary for Economic Policy warned, adding that the more accelerated convergence towards fiscal balance, thanks to the agreement with the Fund, will make "confidence alone". This would attract more private financing, which is rare in Argentina and the emerging world today.

This panorama is that private economists dare to predict two scenarios: the most optimistic, similar to that of the party in power (with a slight growth this year and the next) with the contribution of Brazil, a financial stabilization and a return on the capital market. And the most negative (with the fall this year and the next), as a result of Argentina outside the capital markets, adjusting and with little chance of undoing the monetary garrot.

"Part of this fall is due to drought," said Marina Dal Poggetto, director of EcoGo. Added to this are the monetary crisis and monetary tightening, "which led to a sharper than expected decline in the second quarter."

"We will probably not see falls of this magnitude in the months to come. Although there will be rates above 40%, an aggressive tax adjustment, a regressive income policy and tariff increases, although lower than expected, there would be a stabilization in the fourth quarter, "said Dal Poggetto . According to his calculations, this year will end between 0% and a drop of 0.4%, and "we will have to see if by 2019 the Argentine economy will again be able to receive capital inflows". If not, his scenario is a drop of 1.3%.

"The activity fell 1.4% in May in the seasonally adjusted monthly, the decline is much higher than expected," says Melisa Sala, LCG economist, who added that In April and May the economy liquefied all the improvement of the first quarter. "If the economy stopped falling in June and stagnated at the May-December level, GDP would fall by an average of 0.4% in 2018," he said, adding however that the data is already negative in June. Thus, LCG has reduced its forecast for 2018 to a decline of 0.8% year-on-year

"The economy is entering into recession at different rates in different sectors," says Juan Luis Bour, director of FIEL .

"The fall is very strong in agriculture, which could also give signs of recovery earlier, in transport and trade, while the slowdown has just begun in some sectors, such as construction and utilities, or still does not appear in other industries, "said Bour. ​​

" With June's preliminary data on the industry and the conditions that define the short-term macroeconomic scenario, we should expect a third quarter with sharp declines in GDP, "said Mr. Bour. ​​High real interest rates to stabilize the financial situation in the short term." Therefore, we must expect a rapid disarmament of stocks in companies, which means slowing or stopping production for a while to drain these stocks, "he said. third quarter and part of the fourth