Fermín Koop is an economic and environmental journalist from Buenos Aires.
Concerns in the private sector are growing about the ability of Argentina’s manufacturers, producers and builders to bounce back from the economic downturn, after new data this week underscored the extent of the crisis facing the sector.
Hit by a deepening recession, industrial and construction activity registered yet another sharp decline in February – the 10th consecutive month of shrinkage in the yearon-year comparison.
According to data released by the INDEC national statistics bureau, industrial output dropped 8.5 percent in February, while construction declined 5.3 percent, both interannually. Those figures contrasted with 2.4 and 8.4 percent growth respectively when compared to January.
However, government sources said the month-by-month data indicated the sector was slowly beginning to recover.
“The variation from January to February, plus the economic figures seen in December and January, support the theory that the industrial activity ended its crisis,” sources at the Economy Ministry said. “The economy is in a recovery phase since December.”
But despite that optimism, many economists don’t agree, with some saying uncertainties on the currency market, the growing interest rates and the larger consumption of imports, among other reasons, will continue to pressure the domestic industry for months to come.
“The industry sector hasn’t hit rock bottom yet. The instability on the exchange market will continue to be there [and] Argentina relies deeply on what happens in the rest of the world. We are seeing a very bad combination of factors for the industry,” said Mariano Kestelboim, an economist at the University of Buenos Aires (UBA).
Diego Coatz, the Argentine Industrial Union’s (UIA) executive director, agreed. “Companies are still selling very few goods. And the high interest rates create very strong financial pressure.”
All industrial sectors registered declines in February, except tobacco, which rose 9.5 percent. The most affected areas were transportation, machinery and equipment and vehicle production, which dropped 11.3 percent.
Purchases of key goods for the construction sectors saw an across-the-board decline, with 30.9-percent drop on floors, 21.8 percent for sanitary equipment and 16.3 percent for bricks. Additional contractions of 13.9 percent on asphalt and 12.8 percent on steel and iron were also seen.
“The government is looking for solutions to the economic crisis without paying attention to the industrial and productive sectors. Clearly the best way to stop the decline is starting the production engines,” said UIA representative José Urtubey, prior to the data’s release.
For the government, the fact that February’s interannual decline was lower than that seen in December and January is a good sign, to which can be added growth in the number of construction permit requests. In February, 702,000 square metres were authorised for construction, 36.6 percent more than in the same month of 2018.
“For the first time since December, 2017, the construction sector has accumulated two months with growth, when not compared interannually,” sources at the Treasury Ministry said. “[But] that doesn’t mean that we won’t see any more declines compared to last year.”
Representatives from UIA are less optimistic. Miguel Acevedo, the UIA’s president, told Perfil last week that for the industry to recover it would have to grow at ‘Chinese rates’ of at least nine percent per month.
Acevedo argued high interest rates “have destroyed the industrial sector.”
Despite the government’s positive expectations, surveys carried out by INDEC quizzing business leaders have shown negative outlooks dominate. Almost 50 percent of companies that carry out private works expect activity levels to reduce further, while 45 percent said they don’t expect any changes. That’s due to the economic decline, growing debts and high construction costs. A similar scenario was described by public-sector firms, with 44 percent expecting a decline.
Only a few days ago, INDEC revealed that the economic activity declined 5.7 percent in January interannually. However, it did grow by 0.6 percent when compared to the previous month, December.
Next month will offer a more complete picture of the industrial and construction sector, proving if the recovery, as viewed by the government, is actually happening or if it has been halted by the currency devaluation seen since February – with the exchange rate going from 38.20 pesos to the US dollar to a peak of 44.86.
The tension in the currency market has led to the Central Bank accepting an increase in the rates for Leliqs, which went from 43 percent to 68.35 percent. The hike means more expensive loans for companies, which can make the recovery of the industrial production even more challenging.
“The industry depends on the domestic market and the consumption levels, which is clearly in decline. Income levels didn’t follow the inflation rates of both registered and informal workers, who now have less money to spend,” Kestelbom said. “That all adds up, with companies not having access to loans due to the interest rates.”