Argentina has fallen into recession. Key indicators released over the past week show slumps across the board, from consumer spending to manufacturing. Families are increasingly resorting to loans to afford food. Meanwhile, the informal dollar exchange rate, or “blue dollar,” reached an all-time peak of AR$1,300 on Thursday.
March economic activity fell by 8.4% year-on-year and 1.4% from February, the INDEC statistical bureau reported Wednesday. Activity has fallen for six straight months and was previously flat between August and September. This confirms the economy has shrunk for two consecutive quarters, meeting the technical definition of a recession.
Argentina’s GDP fell by 1.6% in 2023, and the International Monetary Fund forecast a 2.5% drop for 2024.
Consumer spending has tanked, too, with separate March INDEC figures showing yearly drops of 9.3% in sales at supermarket sales, 10.7% in wholesalers, and 11.3% at shopping malls.
The Córdoba Grocers’ Center measured a 30% drop in sales in April compared to March, a fact the center’s vice president Vanesa Ruiz attributed to incomes falling far behind inflation.
“People are no longer consuming and buying food,” she said. “Families are completely indebted. Nine out of ten households need to finance their food,” she said. “48% do so by having a tab in the store, 33% by using credit cards, and 8% by borrowing money.”
The informal U.S. dollar rate known as the “blue dollar” peaked at AR$1,300 on Thursday, easing to AR$1,220 on Friday. After months of relative calm, it jumped by 8.9% in one week. The figure is well above the 2% crawling peg, the rate by which the official peso is devalued each month. The government has maintained this policy since it devalued the currency by 54% in December.
Analysts attribute the greenback’s rise to recent decreases in the Central Bank’s benchmark interest rate, making the peso less attractive for investors and therefore increasing demand for dollars. The current nominal rate is 40% and the effective rate is 49.1%. Interannual inflation was 289% in April.
Leandro Zicarelli, a financial analyst and host of podcast Financiero, Monetario e Irreverente, said the government may be looking to cause a “small currency run.” Soybean exporters can sell 20% of their dollars in the financial market, so a higher blue-chip swap rate would give them higher profits. The remaining 80% must be sold in the official exchange market, meaning that sales bolster the Central Bank’s international reserves.
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Activity flagged across nine sectors in March, INDEC data showed. Construction and manufacturing declined 29.9% and 19.6% year-on-year, respectively.
Similarly, a report by the Argentine Confederation of the Medium Enterprise (CAME, by its Spanish acronym) published on Sunday revealed that the industrial activity of small and medium-sized companies saw an interannual drop of 18.3% in April — the fifth in a row and the harshest in the last three months.
Paper and printing suffered the worst, plummeting 32.3% inter-annually, according to CAME. A La Rioja paper company representative quoted in the report said production was “falling much more than expected.” The metal, machinery and equipment sector came next, with companies working at a loss and complaining of paltry sales.
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Matías Kulfas, former Production Minister under Alberto Fernández, blamed the Milei administration’s economic policies for the body blow to industry and construction. “They are both closely associated with the domestic market, which is suffering the consequences of the drop in income caused by December’s devaluation,” Kulfas told the Herald.
“We are forecasting that cement sales will be around 9.2 million tonnes this year,” he said. “In 2020, at the beginning of the pandemic, sales were 9.8 million tonnes.” He argued that government plans to open up imports for products in the basic basket could worsen Argentine industry’s predicament by forcing struggling companies to compete with cheap imports.
The slump is already hitting jobs. News site Infobae revealed this week that 275,000 “cuentas sueldo” — the type of bank account used to collect paychecks — closed down in the first three months of the year, indicating that that number of jobs disappeared in that period. Using public information, the Centre of Political Economy (CEPA) revealed last week that 62,000 people lost their jobs in the private sector from December to February.
Last week, Changomás supermarket laid off 152 workers from eight branches in Buenos Aires province. There were also layoffs at Acindar, FV, PepsiCo, General Motors, Whirpool, Mabe, and Fate. The job destruction exceeds that during the pandemic.
Meanwhile, President Javier Milei seems undeterred. On April 24, during a speech in the Fundación Libertad, he said the economy would rise like a “scuba diver’s fart.” The results, however, remain to be seen.
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