Private consumption was the main driver of domestic demand and GDP last year, more than half the growth of the last quarter (growth of 2.8 percentage points of GDP), a dynamic that we have not had since early 2014 seen .
The low growth in employment and wages, together with the multilateral depreciation of the peso and the reduction of margins in trade, however, point to moderate consumption in the coming quarters. The hope remains established in 2019, when a revival of investment and employment comes to an end.
Although the figures confirm an upturn in investment in the year (an annual growth of 7.1% in the second quarter), a large part is explained by the replacement of machinery and equipment and inventories, and they do not yet reflect the expansion of the production capacity or new investment projects that generate jobs.
Another factor to take into account the increase in investment in capital supplementation is that a large proportion of these goods are of imported origin, generating little added value and therefore a limited contribution to GDP growth.
For example, in the second quarter, investments (gross fixed capital formation plus stock variation) contributed 2.7 pp to GDP growth, which was offset by imports of goods that deducted 2.7 pp. In short, investments that expand production capacity and generate employment have not yet been observed, at least not in 2018.
The tax modernization, in the semi-instantaneous depreciation dimension, to become retroactive, can advance and even create new investments in 2019, but also has the effect that it is postponed because modernization is stalling in Congress.
For the sake of clarity, the good news will be visible by the end of 2019 and 2020. According to the investment register of the Capital Goods Corporation, new projects in mining and real estate have started to be planned, which would lead to an increased demand for employment, in the construction and exploitation phase, allowing private consumption to be maintained in the coming years.
With this in mind, the prospects for employment would only improve late next year, and the salaries do not seem to recover either. Here, the phenomenon seems to have more structural elements, ranging from a larger supply of employment linked to immigration, to lower demand, especially in trade and production where the digital economy would play a role.
All in all, we anticipate a significant moderation of trade from July, especially in its sustainable component. This creates another possible responsible. The recent and long-awaited depreciation of the peso has started to put pressure on the margins of trade, which has already been compressed to support sales in the past year and which now has little room to absorb the higher import costs. Finally, and somewhat more worrying, is the delay in the sale of, among other things, supermarkets and clothing. Everything indicates that trade will continue to moderate and that the hope for now needs to be embedded with more foundation in next year.