After a 2022 with growth, the industry started this year with sharp drops in production and sales. In addition, financial tensions are already being felt in the real economy: due to the lack of dollars and high interest rates, only 1 in 5 companies expect the country’s economic situation to improve during the year.
This is clear from the special report on industrial indicators and expectations carried out by the study center of the Argentine Industrial Union (CEU-UIA). Meanwhile, the business leadership of the UIA is negotiating with the Government the projections of imports, an improvement in access to credit for SMEs and calls for regulatory frameworks to promote sectors, such as energy.
bad start
The CEU-UIA report shows that the industry started 2023 on the wrong foot. In January, almost half of the companies had falls in production (45.2%)compared to the last quarter of 2022. It is the highest data since the series began, in January 2021. A similar situation was registered in sales: 46% of companies had a drop in local sales in January compared to the last quarter of 2022. The impact on exports was less: they decreased in 34.3% of the cases.
The CEU-UIA report also puts the magnifying glass on SMEs, which also registered less dynamism in production and sales: in January, 45.8% registered a drop in production. In fact, The UIA’s SME department works with the Undersecretary for Small and Medium Enterprises, of the Ministry of Economy, in a relief. They seek to update the billing ceilings of the SME registry. “The current amounts are outdated as a result of inflation and many times create complications for companies to access government programs,” they said from the entity.
The uncertainty in the markets is already being felt in the real economy. When the UIA asked the companies what they expect the situation to be like in a year, compared to the current one, only 31% foresee an improvement in their own company. A year ago, that number was over 50%. In the same line, when asked about the future of the country’s economic situation, only 20.3% answered that they expect an improvement. This data never exceeded more than 40%.
Usually, the results gave a lot of discrepancy among the businessmen who believed that the company itself was going to do better and, on the contrary, the country much worse. The novelty of this latest report is that this distance is narrowing, which could be read as the complex situation that was projected for the macro is already beginning to materialize within the industry.
investment falls
In fact, at the meeting of the board of directors this Tuesday at the UIA they talked about the “increase in production and financing costs”, and the “importance of boosting access to foreign currency for the acquisition of imported inputs”, to give continuity to the production process. More than interest rates, the biggest concern today in the manufacturing entity is the lack of dollars: they closely follow the estimates of the harvest of the agricultural sector as a result of the drought, and they analyze with the Secretary of Commerce the projections of imports for the whole year. Despite the relaxation of the IMF’s reserve goals, in order for there to be greater “relief”, they are waiting for exchanges that can take place between countries, be it China or Brazil.
In practice, uncertainty is reduced by the number of companies that consider that it is a good time to invest in machinery and equipment. Although more than half assured that it is a good time (54.7%), a year ago, in January 2022, that figure reached 75%. In fact, capital goods was one of the sectors with the lowest imports, according to an official report on the first four-month period of the SIRA system. Authorizations for economic use were 51% for inputs, 20% for energy, 13% for final consumption, and 16% for capital goods.
Another topic that was discussed in the board of directors is the need to have a “regulatory framework” for the energy sector, and that it can “deploy its full potential, together with the cluster of industrial suppliers”. This is a claim to Congress that other businessmen such as Miguel Galuccio (Vista) or Marcelo Mindlin (Pampa Energía) have been openly making. At the moment, the LNG law has not yet been sent.
In any case, it is still not clear how the latest measures of the Economy to establish new financial instruments could impact the business sector. In dialogue with Ámbito, Guido Lanzillotta, stock market analyst and director of the Stock Exchange, analyzed: “It is clear that the measures were not for the productive sector. Their purpose is that the Economy has more tools to have more controlled financial dollars and attract financing in pesos. If it goes well, and they manage to contain the exchange rate for a while, This could give predictability to companies, who need to know how much the dollar will be in 60-90 days, to build the sale price”.
On the contrary, Lanzillotta added: “In a context of an inflationary spiral, drought and an election year, it is important that they could provide certainty regarding the exchange rate, so as not to generate a feeling of permanent alteration, which leads to remarking just in case, given the uncertainty of what the replacement cost will be. In fact, the vast majority of sectors have access to imports with financing for 30 and up to 120 days.
Source: Ambito
