The illusion of the recovery and risks of the current economic program

The illusion of the recovery and risks of the current economic program

The Argentine economy exhibits a formal statistical rebound that, at first glance, could be interpreted as a sustainable recovery. However, behind the favorable indicators underlie fundamental questions about the strength and viability of this growth. Is this economic dynamism a true path of recovery or simply a technical rebound with ephemeral effects? The country’s recent economic history warns that many of these transient improvement phases have preceded deep crises.

With a context of fiscal restrictions of difficult continuity, exchange delay and a strategy of “Carry Trade” Persistent, uncertainty about economic future is inevitable. This article analyzes the factors that explain the recent growth, the structural inconsistencies of the current model and the challenges facing the economy in the coming months.

Economic recovery has been gaining impulse and the activity has reached October 2023, month of national elections. In November 2024, real activity gained intermensual 0.9% and the impulse of sequential growth was +9.9% trimester against quarter, (falling strongly the speed to (42%) much less powerful than 17% annualized of the third quarter according to the calculations released by Minister Sturzenegger. Recovery in the form of “inverted tilde”since the activity of November 2024 stood a slight 0.2%, above the October 2023 (again, poor comparison against a month of presidential elections). That said, The November level was still 2.8% below the cyclic peak observed in June 2022 with the government of Alberto Fernández and Minister Martin Guzmán.

The breakdown of the offer side shows that The sectors that lead the recovery (from the third subsoil of April 2024) They include manufacturing (+7.8%), construction (+7.7%), trade (+9.1%), hotel (+8.4%), mining (+3.8%) and the gloomy record that doubles the best promotions; Financial intermediation (+15.9%). Despite these profits, several sectors are still below the levels of 2022/2023.

The projections of the GDP, of the Research Departments of the Investment Bank for 2024 and 2025 foresee a contraction of (-2.6%) year-on-year in 2024 and a recovery of +5.5% in 2025. However, this last estimate is subject to modifications to imminent economic changes, related to a new agreement with the IMF.

There is an unusual dislocation between the series of activity not seasonally and seasonally adjusted by 2024, since some series show a decrease of 2.5 % so far this year until November, while other series show a (-2,9 %). This 0.40% diversion was reduced compared to the previous month, and is expected to adjust, since revisions usually align the annual variations of the series. Leaving technicalities aside, It is worth noting that before the changes that look peremptory, the majority of the high frequency indicators suggest a positive growth trend that extended until December, which inclines the annual prognosis of 2025 upwards due to a technical factor ( statistical drag) and, probably more relevant, the underlying strength of the impulse of the activity amid the deflationary trend and the gradual growth of credit.

Throughout 2024, the radical surgery of spending became the key to the relative stabilization effort in around 2.7%. Despite the sacrifices imposed on many sectors of the population in 2024, the administration adjusted the flow deficit of the national government. Thus, in government numbers, the primary surplus rose to 1.5% of GDP in 2024, a significant change with respect to the 1.7% deficit of GDP carried in 2023. The national tax authority was able to offer a small general surplus, of 0.2% of GDP, an important improvement, although not proportional to the gigantic sacrifice made by citizens.

The impulse of real primary income rose to 9.5% quarterly, helped by the recovery of the underlying activity. On the expenditure side, the primary expenditure decreased when it fits seasonality in December, in 2.4% month against month, which promoted the correction of the fourth quarter on an annualized basis to (-15% quarter against quarter ). In terms of levels, the real primary expenditure was 28% below the levels observed in July-November 2023, but 4% above the minimums recorded in June 2024. The expense has been rising since then. The 2024 adjustment was led by capital spending, which explained 33%of the annual spending adjustment, followed by social transfers (in particular retirement) with 24%, subsidies (14%), transfers to provinces (11 %) and consumption (10%).

The stabilization effort initiated in 2024 has been based on an unrepeatable fiscal strip as the image of an extremely disruptive government wears out. For fiscal year 2025, the concept of investment departments of the investment banking assumes that the administration is maintaining a small general surplus, although its real size will probably depend on the new IMF program that is currently being negotiated. They expect income to continue their recovery, driven by cyclical recovery that, as mentioned above, is gaining strength and biased cyclic income upwards, while the Esperanza Foundation see less space to continue adjusting the expenses. In fact, the elimination of the country tax by December 2023, together with the absence of extraordinary progress of the income tax in 2025, could imply a reduction in income together of around 2% of GDP. In total, the friend and moderate banking projects a small general surplus of 0.2% of the GDP by 2025, ignoring what may happen from a new agreement with the IMF, which would clearly alter the exchange rate, the exchange rate, the Foreign trade, the evolution of reserves, and the evolution of inflation, among many other variables.

In the last two months some alarms are triggered. In the monetary face, the external and fiscal front, it can be affirmed that much more of those planned, the BCRA buys dollars has been issued, however, the reserves fall and does not accumulate, follow the drainage of private deposits in dollars, the Exchange rate continues to delay and the use of fiscal policy to reduce and compensate for the exchange delay weakens the mooring of the precarious model.

In summary, despite the apparent improvement in activity indicators, structural risks persist on the Monetary, External and Fiscal Front. The recent monetary issuance, the inability of the BCRA to accumulate reservations, the persistent exit of private deposits in dollars and the exchange delay configure a fragility scenario. In addition, the use of fiscal policy to compensate for these imbalances could weaken and not strengthen the sustainability of the economic program.

The eternal “carry”, combined with an appreciation of the real exchange rate is pathetic. The monetary policy rate under 10% (from 32% to 29%) and the micro devaluation rate under 50% (from 2% to 1%) deepening the bicycle and no, stopping it. A low accumulation of reservations was never a sustainable strategy in the past. History says that this type of mixture has produced celebrities. What will be the course of monetary and exchange policy? We don’t know. Uncertainty about the coming months is huge and the usable alternatives show huge hazards.

Finishing, although economic activity has shown signs of recovery, the sustainability of this process remains highly questionable. Experience shows that, without a solid and consistent economic model, short -term improvements tend to be ephemeral. The current economic scheme presents a series of contradictions that could lead to a new episode of instability. The fiscal adjustment policy has allowed certain advances in the consolidation of public accounts, but the sacrifice made does not seem proportional to the benefits obtained. Additionally, the latent risks on the Monetary and Exchange Front generate serious doubts about the continuity of this model.

In this context, the chances of success of the current economic program are low. Structural inconsistencies and accumulated imbalances could lead to a less auspicious outcome than current figures suggest. The true test of the Argentine economy is not the short -term technical rebound, but the capacity of the model to sustain growth in a medium and long term horizon.

Director of Esperanza Foundation. Postgraduate professor at UBA and private universities. Master in International Economic Policy, Doctor of Political Science, author of six books.

Source: Ambito

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