Signs of Growth Dissipate, as the Macro Picture Darkens
Herein we analyze the mounting economic pressures the government faces toward yearend, and in the runup to the October 2017 midterm elections.
In our October 3rd report, we pointed out that while Q2 activity and external data were negative, higher frequency indicators for August suggested the possibility of an incipient economic recovery. Two months later, with the most recent activity data corresponding to October, an ongoing recession in Brazil (Argentina’s main trading partner) and some anxiety over the impact of Trump’s victory on global trade, commodities prices and interest rates, it’s clear that no recovery has happened. To the contrary, the latest activity indicators were disappointing, fueling a worrisome deterioration in fiscal accounts.
That means that the hope of a swift “V-shaped” recovery toward yearend has also evaporated.
So far, social pressures that often build up at this time of the year have not spun out of control, beyond labor unions pressing for better wages. Confidence indices continue to reflect public trust in the government’s ability to curb macroeconomic challenges. But confidence could fade, if the public continues to suffer from high inflation, and a consequential decline in real wages.
The economic situation is generating a challenging macro environment that will be hard to control with monetary sterilization alone, less if the political timing makes it difficult to anticipate a more comprehensive fiscal stance before next October. The key question is whether voters (and/or the economy) will give the government enough time to transition toward the elections, even if it doesn’t address fiscal and monetary imbalances.
The seeds of growth for 2017 remain in place, via capital availability through an expected tax amnesty (its main deadline is December 31st) and expectations of a benign agricultural campaign. Yet the horizon for this seems to be lengthening.
Now read on...
Register to sample a report