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Is the base there? The transition has passed and a new stage is coming for the macroeconomy

Is the base there?  The transition has passed and a new stage is coming for the macroeconomy
Is the base there?  The transition has passed and a new stage is coming for the macroeconomy

This week several data were released corresponding to the first quarter of the year, which, although it should not have surprised anyone, They invite reflection not only in view of the announced end of the existing transition scheme, but fundamentally in view of the new macroeconomic configuration that the government has in mind.

The sharp fall in investment (-23.4% yoy), induced by the contraction of both public and private consumption (-5% and -6.7%, respectively), explains the year-on-year collapse in activity levels in the first three months of the year, a hard blow for an economy like Argentina’s, which is stuck at 2012 levels.

Among the affected sectors, the construction (-20%), the industry (-14%) and the trade (-9%), hit by several of the elements that remain part of the government’s policy set, such as the brake on public works or the liquefaction of income and savings. On the contrary, both the sector agricultural (+10%) as mining (+8%), showed positive variations, in the first case and at least partly due to the effect of the comparison base, affected by the drought that began in 2022 and deepened in the first months of 2023.

The magnitude of the fall, the uncertainty about the upcoming monetary regime, as well as some of the structural features that make up the Argentine labor structure, dragged down both employment and real income, within the framework of a strong increase in inequality, the largest in the last 4 presidential terms.

Expansionary adjustment or greater restrictions in the medium and long term?

Given the level of imbalances that the Argentine economy faces, Any scheme that aims to recover and sustain a rate of economic growth sufficient to accelerate the generation of more and better formal employment opportunities requires not only a short-term stabilization program (absent so far), but also a series of structural changes that allow the main restrictions to be mitigated in the medium and long term.which concern not only internal and external accounts but also the labor and distribution level.

Employment and income gaps

The sharp drop in the production of goods and services is enough to understand the destruction of jobs that was seen in the first quarter of the year, leading the Open unemployment at 7.7%, 0.8pp. above the records of a year ago. The most affected sections were those with the greatest flexibility, precariousness and/or low qualifications, mostly linked to the commerce, industry and construction sectors.

I am interested, however, in explaining employment as an imbalance but in the medium and long term, given the dependence it has on the growth of the economy, mainly in the most structured segments, the ultimate engine from which to recover real income, shore up distribution and think about a significant reduction in poverty.

The demand for labor depends on the growth of activity and income (those who produce generally do so to sell), but also on the expectation that a situation that is considered favorable will continue to be so over a reasonably long period of time. Therefore, the challenge going forward involves not only growing again, but also doing so in a sustained manner, in order to rapidly absorb the excess supply that the market has, which is expressed in a high incidence of informal positions, both salaried and independent. , which have historically acted as a refuge from unemployment and also represent a concrete limit to the possibilities of economic and social improvement.

That the problem transcends the current situation, is tied to the possibilities of growth and the reduction of informality, is also reflected in the imbalance in income distribution. The current shock to wages is logically very worrying (even in the formal private sector, almost 15pp. below the same period in 2023), which feeds back into already known phenomena such as demanding employment and underemployment or the secondary worker, aimed at complementing the real decrease in income. But without a change of course, the current gaps could even worsen.

On the one hand, and in macroeconomic terms, recovering and sustaining a growth process by appealing only to increased exports to adjust external accounts will force the government to keep the share of wages in the product at bay, eventually forcing new declines if productivity does not accompany.

On the other hand, improvements in terms of the Gini index They will continue to be closely tied to what happens with labor informality, given the strong income penalty that exists with respect to formal occupations (over 35%), and increasing as one descends to the last deciles of the distribution.

More than 80% of household income in our country comes from employment, so not only informality but also the links described here with inequality and poverty reinforce the need to be bolder when planning a development path.

From stabilization to growth

The Argentina currently has the conditions to make an export leap and become a key supplier of inputs for the energy transition, with projections to 2030 that reach USD32 billion in the case of energy and close to USD15 thousand for exports of minerals such as lithium, copper, gold and silver, among others. These are sectors with important productive chains, effective and potential, which with sufficient scale can significantly improve the activity and employment multipliers in other sectors and activities such as generation and distribution, related services, stone and metal mining, metalworking and steel, among others. others.

In this way, the stabilization strategy should not only simultaneously attack all imbalances in the short term, but must necessarily be accompanied by policies that promote and reinforce structural change, within the framework of an agenda that goes far beyond the logic of merely correcting market failures.

Growing, accelerating job creation and improving income distribution in the 21st century means inserting ourselves into new technological paradigms, creating and shaping markets, exploiting localized externalities and betting on large structuring projects, giving dynamism to the local productive structure.

CECA economist, former vice president of the BCRA

Source: Ambito

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