How much will the coronavirus cost the Argentine economy?

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The local impact of the coronavirus will deepen the recession in which the Argentine economy has been plunged since the beginning of 2018, leading what was originally intended to be a contraction of 1.5% of GDP to a fall of 2%, the consulting firm Ecolatina and the economist Orlando Ferreres agreed. That drop, for a GDP of approximately USD 450,000 million, means a loss of generation of goods and services for a little more than USD 2,000 million in terms of value added, and of approximately USD 5,000 million at current market prices.

“This is a strong blow to economic activity,” he said. Maria Castiglioni, a partner in the C&T Asesores Economicos study. A first effect, he said, will be the fall of the agricultural sector, both due to the price effect (lower of agricultural raw materials) and quantities, due to lower world demand. That in turn will have an impact on the value of exports and tax collection. In any case, Castiglioni said, it is difficult to separate the effects of what was already happening with the economy.

In fact, according to estimates by the consultant Abeceb, the fall in exports is estimated today at about USD 3.5 billion, consuming part of the slow exporter rebound verified between 2016 and 2019

By the way, there are sectors in which the impact is decisive and almost entirely attributable to the impact of the pandemic. The clearest and most immediate case is the tourism sector, It had a good summer season, both due to the internal displacement of local travelers and inbound tourism, but the prospects for winter tourism are really poor, aggravated by the fact that one of the main countries of origin for foreign visits in winter is Brazil, which also strongly devalued its currency and thus Argentina became relatively expensive as a destination. The bet on Chinese tourism was also closed, for an undetermined time., one of the promises that the sector had moved at the International Tourism Fair (Fitur), held in Madrid in January.

In addition to tourism, there are the effects on trade and the rest of the economic activities, explains Castiglioni, because a higher degree of isolation implies lower levels of consumption and, by drag, production, including industrial production, also hindered by the difficulties of supplying Chinese supplies, parts and spare parts and even by the affectation of the logistics circuits even for provisions not coming from China.

About, Sonia Castiglioni, Minister of Production of Tierra del Fuego, told Infobae that by May it is estimated that a large part of the Argentine industry, not only the plants located on the island, will have supply difficulties. “In some inputs, China is the only supplier,” said the official, who gave as an example of the type of situation that arises that once the activity in a supplier has been restored, it also has to be verified that the suppliers of that supplier have returned to produce. provider. And if the production chain is restored, so will the logistics circuit. “Yesterday (Thursday) a company that received spare parts by air told me that the cargo circuit was China-US-Argentina. But now the US closed the airports and this Friday it was still not clear what would happen to the cargo planes.

“Obviously, all this has an impact: just look at the amount of carbon emitted in China,” he said. Infobae the Economist Orlando Ferreres, owner of the O.J. Ferreres y Asociados study. “What was already foreseen as a fall of 1.5% of GDP, in the end will be 2%, adding effects, he points out. If Expoagro closes a day earlier, if football is played without an audience, if fewer people go to restaurants , to the cinema, to whatever it may be, the sum of these small effects approaches that 0.5% of additional contraction, explained the economist, for whom the situation most similar to what is currently happening occurred in 2008, with the crisis of “subprime” loans in the US, which spread to Europe and the whole world.

The only positive effect that the economy exhibited in the first months, says Ferreres, was greater consumption by the poorest sectors favored by official measures, but with little impact on economic activity. Domestic consumption will not be a major pulling force, he says, because there is no prospect that real wages will recover a significant part of the decline in the past two years. Although the economist did not give so much importance to the drop in the price of soybeans, because it was already at levels lower than the current one, he did draw attention to the drop in the price of oil, which distances Vaca Muerta’s chances as a driver of investment and production.

Going forward, Ferreres continues, the keys will be how quickly a vaccine or effective treatment of the disease is obtained and what the result of the debt renegotiation will be.

On that front, by the way, the impact is not positive. While lowering international rates may make the write-off that the government may require relatively less aggressive, Argentine assets (those that already exist and those that the government can offer) will look too risky. Just look at the evolution of the country risk that the sovereign bonds of Argentina and those of countries like Brazil, Colombia, Uruguay and Croatia (neighbor of Italy, the European country most affected by) had in the last month (particularly in the last week). coronavirus).

While the indicator computed by J.P. Morgan went from 2,420 points on Monday, March 6 and closed the week at 3,100 points after having touched 3,200 points (that is, an increase of almost 700 points), the country risk of Brazil increased 105 points, that of Colombia 139 points and that of Uruguay, a “friendly” restructuring of its debt, increased by just 53 points, even before the rebound (and reduction of country risk) on Friday.

Of the 20 emerging markets for which Morgan computes the EMBI (Emerging Market Bond Index), the risk increase closest to that of Argentina was that of Ukraine (another country that “friendly” restructured its debt), which increased 319 points, less than half of what the Argentine risk did.

What can the government do? “What all governments do: make time and hope that there will not be much contagion until a vaccine appears,” says Ferreres. That finding, says Ferreres, will take not days, but months “if one is optimistic.” So, in principle, it will be necessary to spend the winter without that solution in sight.

Meanwhile, the consulting firm Ecolatina, founded by the former Minister of Economy Roberto Lavagna and currently under the direction of the economist Lorenzo Sigaut Gravina He noted in a report that while the Chinese economy “is slowly returning to normal, the situation in the West is dangerously escalating and beginning to affect normal social, political and economic development.

The closing of borders, the cancellation of flights, the suspension of massive events are part of a political agenda that turned violently and today, the report says, “it is focused almost exclusively on controlling the pandemic; economically there is a sharp deterioration on the financial front, in international trade and a paralysis of consumption and production in those countries where a significant part of its population is in quarantine. “

The diagnosis, although with a slight lag, is similar for Argentina. So the report says, “The impact on economic activity will be significant.” On the commercial side, he points out, although Argentina is one of the countries with the least trade openness in the world, a significant part of its production is destined for China, the USA and Europe, which account for about 30% of our exports) and the shock The demand that these countries are having will definitely affect the volume of our sales; at the same time, the price of raw materials fell in recent weeks and it is unclear whether it will recover in the short term. “

Tourism will be directly affected by fear and the closing of borders and will also suffer the entry of foreign currency “in a context of shortage of International Reserves”. Imports would also fall, but less than exports. The shortage of foreign exchange, according to the report, will put the economic team in a dilemma: “Either it imposes quantitative restrictions on imports in order to preserve the trade surplus to meet its financial commitments, or it agrees to partially lose it and not resent the activity level. It is likely that a mix, which will affect both debt negotiation and local economic activity. ”

Regarding debt restructuring, the other major conditioning factor for the Argentine economy 2020, Ecolatina notes that although the situation “although it turns an aggressive withdrawal into something more acceptable, it is also true that it increases the probability that vulture funds will buy a relevant part of the assets to block the restructuring in order to litigate to try to collect 100% of its claims. ”

And as for real, direct effects, it agrees that the cancellation of massive events and an increasing percentage of employees working from home and the possible suspension of part of the school year will affect activity in sensitive sectors. In this regard, remember in June and July 2009, both hotels and restaurants suffered a decrease in their activity that exceeded 8% per month in seasonally adjusted termsThe effect of the financial crisis that started in September 2008, due to the bankruptcy of Lehman Brothers, and the epidemic of the A / H1N1 Flu were added there.

“In this framework, we were forced to cut our GDP projection for 2020, going from a contraction of 1.5% to a 2% one, with downside risk if circulation / quarantine restrictions are deepened,” explains the report of Echolatin. The positive note, in this scenario, is that the fall in international prices and the devaluations of trading partners such as Brazil will help reduce local inflation “as long as there is no new jump in the official dollar, which would occur in a scenario of default ”. Similarly, although the collapse in the price of oil paralyzes local activity in the sector, it helps contain the pressure of increases in tariffs and fuels. In this framework, Ecolatina concludes, “our inflation forecast for the year goes from 37.5% to 35 percent.”

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