Argentina: Activity Index Shows a Strong Contraction in Q4
Argentine monthly activity index contracted strongly (-1.7%) during the last quarter of 2023, revealing that the re-opening effect over economy activity have fully dissipated and now the macroeconomic unbalances will start to be reflected on lower growth numbers. We forecast Argentine economy to contract 0.2% in 2023 as high inflation is set to constrain investment and consumption.
Figure 1: Argentina Monthly Economic Activity Index (2004=100, Seasonally Adjusted)
Source: INDEC
Argentine National Statistics Institute has released its monthly economic activity index for December. The index has contracted for four consecutive months and accumulated a 1.7% fall during the last quarter of 2022. During December the seasonally adjusted index showed a 1% contraction m/m. Curiously, it was the same month in which Argentina won the World Cup with several activities pausing in the days Argentina played. If the index shows a strong rebound in January it is possible that the world cup contributed negatively for economic growth in December.
Effects of the reopening of the economy, seen largely during the first half of 2022 Argentine economy prompted a strong growth of the Argentine economy. However, looking forward, the effects of the reopening seems to have been dissipated and the strong macroeconomic imbalances of the Argentine economy will start to be reflected on economic activity numbers.
Inflation is close to reaching triple digits and salaries are yet to match inflation, which limits family consumption. Additionally, disbursements of the IMF will diminish during 2023 and severe droughts on the rural areas point to a weak harvest in 2023, this will impose difficulties for the Argentine central bank to manage its reserves. To this cocktail we add the non-orthodoxy management of the central bank, which refuse to put interest rates in real positive terrain, weakening the demand for Pesos and, thus, contributing to inflation. Despite growing above 5% in 2022, our forecast for the next year is not positive. We see the Argentine economy to be stagnated in 2023, contracting 0.2% as high inflation will constrain consumption and investments.