Markets: Economists warn of the impact of the drought in the midst of a difficult global context

Analysts and operators give their opinion on the future of the Argentine economy, in the midst of a complex local and external economic panorama. In addition to the growing aversion to global risk derived from doubts about the strength of the world banking system after the bankruptcy of the American Silicon Valley Bank, are added local doubts due to rising inflation, economic slowdown, lower agricultural exports due to a severe drought and scarce central bank reserves (BCRA), in an election year.

local scene

The country is waiting for the International Monetary Fund (IMF) to approve the new reserves goals for 2023. “What does seem is that in this crisis, unlike others, the central banks reacted quickly, providing liquidity, which is the only thing they can do in these cases. But also, this crisis shows that money moves from a bank to another much faster than in the past, and that greatly accelerates financial crises and entities have no way of resisting this rapid outflow of deposits,” said Javier Timerman, a partner at Adcap Grupo Financiero.

“The biggest bank failure since the 2008 financial crisis unleashed risk aversion in the market and a sharp compression in US interest rates”Balanz said in a report.

“The short-term deterioration of macro fundamentals (fall in reserves, acceleration of inflation), financial tensions in global markets and political uncertainty seem to push the CCL (alternative dollar) up, with dollar-arbitrage price a reduced role,” Delphos Investment said.

“Today the center of the problem lies in this fiscal overflow. Fiscal accounts must be ordered, in the medium term fiscal pressure must be lowered and we must get out of this scheme of financial repression that populism brings with it,” Federico Poli said in radio statements , economist and adviser to the Study Center of the Argentine Industrial Union.

“The timid rise in the rate of Leliqs and retail fixed terms to 78% (by the BCRA) has little to offer in terms of containing inflation or financial dollars. For the worse, a higher rate implies greater endogenous growth of the remunerated liabilities of the BCRA, enlarging the ‘snowball’ of Leliqs, which can be considered future issuance,” said economist Roberto Geretto, from Fundcorp.

“Without a strong fiscal anchor, relative price corrections and the removal of the stocks, lowering inflation substantially is going to be unlikely,” he said.

“Inflation in March is probably above that of February. March is a seasonally complex month in terms of price increases because economic activity in all sectors returns to normal,” said Ricardo Delgado, Analytica economist. “The floor of 6% can hardly be pierced and we are closer to 7% in the month of March,” he added.

The hard international blow

“This international scenario is inopportune (for Argentina) since it makes the current transition stage until the elections more complex, where the operators are not even able to gain clarity yet regarding the alliances that will be key for the elections. and also immediately face a comprehensive economic plan, seeking to correct as quickly as possible the serious accumulated imbalances and improve the confidence of the agents”, said Gustavo Ber, from Estudio Ber.

“Continuing to delay the exchange rate, where it was obviously not a price anchor, with daily reserve drain, does not look like a great strategy to get dollars,” said analyst Salvador Vitelli.

We are going to have a year where “economic activity is going to be on the negative side, with high inflation, and the world is not helping either,” said economist Fausto Spotorno, who estimated that for next year “nobody can say that they are going to The economic scenario of the next government will be easy. It will have to have a very well thought out economic program and implemented very quickly”.

“The commitment to sustain real wages ‘as far as possible’ will be the -perhaps the only- objective that the Government will set itself in the previous election”, estimated Ecolatina.

“Paradoxically, or not so much, this will not be through a slowdown in inflation, but through wage increases closer to it, further undermining the purchasing power of informal workers and social security beneficiaries,” he added.

“The drought is dramatic. Every week it seems that it is even worse because estimates continue to be cut. This is going to have multiple causes, the first and most important thing is that it stresses the exchange rate scheme that the Government is trying to implement with progressive devaluation, which it is the alternative to avoid a devaluation in one leap. It is the Achilles heel of the government’s strategy,” said Santiago Manoukian, from Ecolatina.

“International expectations are bad and the local ones are worse, attentive to the imbalances in the economic and financial fundamentals”, stated VatNet Financial Research.

“In the absence of ‘deus ex machina’ news in national and international politics, we expect very volatile markets with the possibility of abrupt changes,” he said.