Higher inflation, more devaluation and greater recession



24 August 2018 – 12:43
In the & # 39; small table & # 39; of the change management we already provide that a recovery is only possible in March or April 2019.

Inflation accelerated a little more and could reach 4% this month in a scenario of a sharp withdrawal of wages, with a high risk of further devaluation of the peso and a recurring recession that began to unleash in April.

Although we need to talk about recession, we have to wait until the economy registers two consecutive quarters of decline and also within the government this does not doubt and now they wonder how long it will take and in which month the word will be reached.

In the "small table" of the management Let's change – put together by President Mauricio Macri, his chief cabinet staff and some radicals – already foreseen that only in March or April 2019 a revival could come, said a source who participates to these dialogues.

The Macri government has decided to correct the budget deficit by adjusting expenditure and liquefaction as a result of devaluation of the currency; This is one of the critical points in the debate with the Peronist governors, who ask to stop the run against the peso and to expand the tax base to ease the cuts.

But in a scenario of growing suspicion, the market has distorted the power of the government and the official set of measures has failed to reverse it: the capital flight rose annually by 35% to 3.351 million dollars, according to the Central Bank. this week

When the values ​​of July were confirmed by the monetary authority, the capital flight since December 2015, when Macri took the chair, reached 54.150 million dollars.

In short, the dollars lent by the International Monetary Fund (IMF) are used by the government to finance capital flight, as the demand for private-sector dollars that is far from being reduced is on the rise.

According to projections from the Center for Economic Studies of Orlando Ferreres, Argentina will need 70,000 million dollars in 2019 to finance itself, of which 40,000 million are insured by the IMF.

A remaining 30,000 remains, depending on how much the government can extend in already contracted debts, so the government aims for local financial investors to continue to gamble on public securities for around 20,000 million.

At the margin, it will miss about $ 10,000 million to bring management change to the local market, as the international market is closed by risk aversion and high interest rates (11% in dollars) that should defy the country.

This scenario suggests that the government could deepen the devaluation of national currencies to liquefy the deficit and reach the target of a 1.3% budget red in 2019, as promised to the IMF.

And the devaluation has no neutral effects in the Argentine economy: according to a measurement by the consultant Elypsis, the inflation in August was accelerated by the rise of the dollar to 31 pesos and would again have a floor of 3%.

"Given that inflation surprised us in the first half of the month, we estimate that monthly inflation is just above 4%," says the report that Elypsis has delivered to its retail customers, including banks and businesses.

Faced with a stronger price hike in the dollar and the acceleration of inflation, pensioners' salaries and salaries could fall between 8 and 12 purchasing power points this year, leading the domestic market to a deeper level than expected. a month ago

Economic activity had grown by 4 percent in January; 5 percent in February; and 2.1 percent in March. The trend varied in April, with a decrease of 0.6 percent; it went up in May with a decrease of 5.2 percent; and scored a cut of 6.7 in June.

This situation has very negative projections for employment – which is stagnating in real terms – and for poverty indicators that have already exceeded 32%, according to an advance of the biannual study of the Universidad Católica Argentina.


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