President Javier Milei’s economic team is seeking to consolidate the narrative of “the worst is now behind us” with March the month enthusing government offices with data showing economic activity moving up.
It’s a timid rebound but still a rebound. Private estimates endorse the jump but require a more cautious reading. The warning is that the traction is almost exclusively external, placing the focus on the deteriorating chain of payments within families. The government, in contrast, affirms that the effect sought is materialising, thanks to lower interest rates.
Argentina’s authorities are closely following a series of high-frequency indicators which, when discounting seasonal factors, indicated a positive shift in March. Luis Caputo’s Economy Ministry especially celebrates the rebound of items linked to the domestic market which had been lagging: sales of non-alcoholic beverages rose 1.2 percent, cement shipments 5.5 percent and the licensing of cars 2.3 percent. In the industrial and primary sectors, they highlight the production of steel, up 11.4 percent, and a 21.4 percent surge in soybean crushing.
“The processes of recovery are never lineal or homogeneous, but the numbers point to improvements and – it seems to me – with solid bases since there is feedback between the improvements leading to a virtuous circle,” a government source said in conversation with Perfil.
Export-driven
Private consultants and firms ratify the rebound but flash amber lights as to its sustainability.
The Estimador de Actividad Económica (EsAE) elaborated by the Eco Go consultancy firm registered an expansion of 0.8 percent when discounting seasonal factors in March as against February, with a year-on-year rise of 2.4 percent. But a radiography of this indicator shows the recovery is not integral – the exclusive driving force was the external market where exports shot up 41.2 percent for the month, while sensitive consumer variables barely shifted by 1.4 percent. For specialists, depending on farm and energy shipments instead of the domestic consumer market places in doubt the temporal continuity of this rebound into the second half of the year.
For the Analytica consultancy firm, the improvement was similar: 0.9 percent discounting seasonal factors, according to their ILA (Índice Líder de Actividad) index.
“March was a month of extended recovery, although heterogeneous. Industry and the external front pulled their weight forcefully, the auto sector reversed its fall and construction gave signs of sustainability. Agriculture registered a monthly dip but it continues to operate at historically high levels,” said the firm in a report.
“Where the rebound did not appear was in household demand: private consumption, family credit and consumer confidence again deteriorated, leaving it clear that the recovery has a low ceiling," it added.
In productive companies, in contrast, a positive comparison with a month which (they highlight) was very poor may be seen.
The Unión Industrial Argentina (UIA) employers' federation sees a general rebound of 3.2 percent for March: “Industry both at the aggregate and sectorial levels continues to underperform in relation to the first quarter of last year while 10 percent below the levels of 2022 and 2023.”
For February, the INDEC national statistics bureau had registered a monthly fall of 2.6 percent in economic activity and 2.1 percent year-on-year.
The peak of arrears
The Milei government’s enthusiastic reading of the statistics co-exists with the harshest side of the monetary squeeze – bank arrears hit a peak of 11.2 percent.
Far from registering alarm, the La Libertad Avanza administration takes this figure on board as already digested collateral damage. Economy Ministry sources indicated: "This is an expected effect of the electoral monetary squeeze and should go down in the next few months."
Central Bank Governor Santiago Bausili, reinforced this line when speaking at ExpoEFI recently. For the head of the monetary authority, the financial system "is healing" after having overcome the peak of missed payments. According to his diagnosis, the resumption of credit activity after the devaluation triggered a "first wave of credits granted blindly." He added: "If there is no credit, there are no arrears; when credit returned, so did the arrears."
Bausili argued that the end of the liquidation of debts by inflation obliged banks to recalibrate their scoring systems, warning: "For the debtor, inflation took care of the last installments of peso credits but not any more."
Private studies speak of the highest arrears in years, coming as a consequence of the income shock. A report by Centro RA of the University of Buenos Aires (UBA) points out that missed payments on consumer credits jumped up from 2.5 to 12.1 percent (almost fivefold).
In parallel, total household arrears reached 10.6 percent, topping even the worst numbers registered in the pandemic and marking the highest level since 2009.
The UBA report links this deterioration in assets to the disparity in the correction of relative prices. With an accumulated inflation since December 2023 of 170 percent in goods and 362 percent in services, the structure of family survival has mutated drastically. Wage-earners have passed from destining 60 percent of their earnings to the purchase of goods to concentrating 42 percent exclusively on the payment of services (four more points than at the start of this administration).
It’s a displacement which absorbs the liquidity of households and pushes them into defaulting on their financial obligations.
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