These problems will occur mainly in the food sector, for example, milk has inputs tied to the official dollar price, as is the case of corn, however, its product placed in the market has a high dependence on salary. A rise in corn, which cannot validate an increase in the price of milk, will take away the profitability of the producer, if its scale is too low it will be in trouble.
Another similar case is the fattening to corral. Calves, given the high scarcity, are very expensive. To this should be added the price of corn that could rise in the face of an increase in the price of the official dollar higher than inflation, rising costs versus stagnant wages They will mean that the higher prices cannot be validated in the market and we are facing problems. Small-scale feedlots will tend to disappear as a result of the bad economic equation.
This problem is not new in Argentina, between 2018, 2019 and 2020 the inflation rate was lower than the rise in the exchange rate, this led to a strong loss of profitability in many sectors and marked years of sharp decline in GDP .
In 2018 and 2019, GDP fell 4.6%, with a decrease in private consumption of 9.4%, 10.5% in the industrial sector and 11.5% in the commercial sector. All this was aggravated by a lower harvest in 2018 due to a very important drought that the country experienced. By 2020, the drop in GDP was 9.9%, with a drop in private consumption of 13.8%, industry 7.8% and commerce 4.5%, here the impact of the pandemic weighed.
Similar but different
Although it is true that in 2022 the exchange rate would rise more than inflation, as in 2018, 2019 and 2020, we notice very important differences.
In the years 2018 and 2019 the interest rate was positive against inflation, which returned loans at very expensive rates, today this does not happen, the rates are negative against inflation and very convenient credits. We excluded 2020 from the analysis due to the extraordinary impact of the pandemic.
In the years 2018 and 2019 the exchange rate was very high, something that was diluted over time, especially with the exchange delay policy of 2021.
In 2018 and 2019, inflation was 47.6% and 53.8% annually, the exchange rate increased 101.4% and 58.4% annually.
In 2020 inflation was 36.1% per year and the exchange rate increased 40.5% per year.
In 2021 inflation would be 52.0% per year and the exchange rate would increase 21.2%, with a difference of 30% that should partly recover in 2022.
Conclusions.
The year 2022 looks like a typical even year, where governments correct mistakes made in odd-numbered years (election years), and prepare to carry out an economic expansion next year ahead of the presidential elections.
What we will see in 2022 will be a correction of the inflation gap versus the exchange rate. The consequence of an increase in the exchange rate above the inflation rate is a removes profitability in many sectors of the economy, which will not be able to validate the increase in the price of inputs in the final product.
This could be overlooked, and we are facing a scenario of strong rise in international prices of products that we export, but we must remember that the government intends to de-anchor us from international prices, with which any improvement in international prices would be left to the State.
Another way to overcome this problem would be for wages to rise above inflation levels. We do not see this immediately given the low profitability of the sectors that generate employment. The great growth of the industrial sector in 2021 was forged by an increase in productivity, since it did not generate a considerable increase in jobs.
Between the second quarter of the year 2021 and December of the year 2019, 931,000 jobs were destroyed, only jobs in the public sector increased, while they decreased among the registered, unregistered and non-salaried employees. The salary increases outperformed inflation among the private and public registered, which number 10.4 million workers, while the unregistered and non-salaried workers, which number 9.5 million, showed a strong loss of purchasing power.
The year 2022 will be economic adjustment, it will seek to achieve a better balance between inflation and the exchange rate. The negative interest rate against inflation does not help to solve the economic problem, but it does help companies that will have to face problems of profitability margins. Scale is essential to overcome profitability problems in 2022. Tax planning will be necessary to reduce the tax burden. In this context, and with a drought forecast on the horizon, it will be difficult for the economy to grow more than 2% next year.
If the government adjusts the economic variables, agrees with the IMF and lowers the fiscal deficit, it would not be unreasonable for Argentine bonds, from the current low prices, to continue to rise, despite the fact that the economy has a very tight scenario.
Financial analyst
Source From: Ambito
