These are some of the best keys of our weekly financial review, done by our Economic Team, lead by Mg Aldo Abram.
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*NEGATIVE DATA: The activity level data will not be favorable for the Government. There are already rumors that this Will be the first time that the economy shows two Consecutive falling years since 2002; which is true. When voters go to the PASO instance there will be 5 accumulated quarter with a falling GDP and a second quarter of 2019 upwards. After the setback of March, the official monthly estimator of the activity (EMAE in Spanish) will show in April a recovery that will compensate fairly well this drop
*ACTIVITY FALLING AFTER AUGUST:After August, the activity level is very likely to fall again, due to the increase in the capital flight which will defund domestic economy. Because of that, the GDP is unlikely to register a third quarter upwards
*SAVINGS FLYING AWAY: The problem is that since the second quarter of 2018 there has been a huge capital fight until the third quarter of this year and then it moderated a little but still continues. That is, savings of Argentines and foreigners is going to wardrobes, mattresses, security boxes and accounts abroad. Therefore, there is an enormous contraction in the internal financing of the domestic demand. When a family that has been overspending its money thanks to bank loans, the Bank calls them to tell them that it will stop financing, there is no other way but to reduce consumption. no one can spend more than his income, less what is saves, plus what it borrows. The same happens with a country, there is no magic. The world decided to stop lending money to Argentina and in addition we, Argentines, decided to save on foreign assets (dollars under the mattress) so that it should be spent less than what is collected (export of goods and services). Because of this there is a trade surplus, that is going from a domestic demand overspending due to excessive credit to a much smaller demand because now savings must be reduced from output, with a sharp contraction which leads to recession.
*A FUTURE OF RENEGOTIATING AGREEMENTS: It is true that, whoever wins, the IMF agreement Will have to be renegotiated by the end of the year or beginning of 2020. surely it will be required that we comply with what has already been set in primary outcome goals, but it will be stricter about progress in the pending structural reforms. However, if the signs argentines and foreigners receive are positive in terms that the solution to Argentine problems will be achieved and the State will continue being austere, there will be a reversal in the saving flow. This Will start to impact in a larger domestic demand finance and might generate a reactivation in the second or third quarter of 2020. It Will depend on how quickly the Government convince people that it will do what it has to be done.
*FEAR OVER BCRA SALES:Some Economists and media have come to preach their concern about the sharp fall in reserves. The fact is that the Government had saved over USD9.000 million till April and the IMF gave it US$10.600 million to pay the debt and spending. It is obvious that the loan was asked because we did not have enough financing power to refinance all maturities of liabilities. Therefore, reserves must fall as well as treasury funds are used to meet the expected commitments. What is important is that so far now the BCRA has nor intervened to restrain the exchange rate.
*THE KEY IS INFLATION: It is our opinion that inflation Will be a relevant factor for the voters, as the Government thinks, but we believe that what happens in the exchange market will be much more important. The fear for a run is much greater than a rise in the Price level, so the key remains in the capacity of the BCRA to stop a fall in the purchesing power of the peso when the exchange rate reaches the ceiling of the band. On its way to that high value, it may try to moderate the rise withdrawing pesos which are not demanded with Leliqs or selling foreign money, now that it is allowed to do so. What it really matters is if it is capable to stop the climbing at the ceiling of the band. If it is not, we will enter a vicious circle of lower demand of pesos and more capital flight because chances of the return of kirchnerism will increase. So, there is no doubt that the main player in this second half of the year will not be the Government, but the BCRA.
*WAGES INDEX: Private wage index rose by 38.2%Yoy in March, accelerating compared to the 35.3%yoy shown in February.
The wage index of the total registered showed a 4.3% growth in March 2019 compared to the previous month, as a consequence of the 3.6% increase in the private sector and a 5.5% rise in the public sector. The total wage index registered a 4.0% increase in March 2019 compared to February 2019, as a consequence of the 4.3% rise in the registered wages and a 2.7% rise in the non-registered private sector. Registered total wage index has accumulated in the last 12 months a 38.5% increase, as a consequence of the 38.2% rise in the registered private sector and of a 39.1% rise in the public sector. Total wage index showed a 37.3% rise in the last 12 months, as a consequence of the 38.5% rise in the total registered and a 32.6% rise in the non-registered private sector.
*ACTIVITY INDEX, DOWN: In April, the Activity General Index by Orlado J. Ferreres y Asociados (IGA-OJF) Consultant company contracted by 1.50%Yoy, decelerating since the -7.68%Yoy shown in March. The Activity General Index by OJF expanded by 1.20% between March and April, taking the seasonally adjusted series, after contracting by 0,72% in the previous period. When comparing it to the first quarter in the same period a year before, the indicator contracted by 5,.8%. Looking at the 1.5%Yoy fall in April, it was impacted by falls in Manufacture industries (-6.3%Yoy), Construction (-5.4%Yoy), Electricity and Water (-5.3%yoy), Wholesale and Retail sale (-3.8%ia) and the Real Estate sector (-2.5%yoy). These falls were mainly compensated by the Agriculture and cattle raising, that was highlighted with a 52.2%Yoy rise, driven by the beginning of the grain harvest (specially soy, and corn)