After the fall of consumption, now it was the investment. In July, this indicator collapsed 5%, according to data handled by the Ministry of Production. The rise of the dollar changed the equation and took away from the expansion of the economy the main driver that had driven it in 2017 and at the beginning of this year.
Investment increased by 3.1% in the second quarter and accounted for 20.3% of GDP, the highest mark in the last ten years. It came to accumulate six consecutive quarters of growth. However, in the measurement without seasonality, the investment fell by 7% compared to the first quarter and ignited the first red light.
From the Ministry of Production foresee that towards year end “the investment would moderate its rate of rise”, according to the Monitor of the Real Economy, in charge of Paula Szenkman, secretary of Productive Transformation. As anticipated by the Advanced Monthly Investment Indicator, the investment would fall in July 5% compared to the same month of 2017.
Since the beginning of the change management, investment and consumption, at different speeds, were the two driving forces of the economy. Private consumption rose 0.3% in the second quarter of this year and has six periods on the rise. However, the government admits that “it has been slowing down due to the impact of lower purchasing power, financial volatility and falling expectations”. The massive consumption continues without rebounding: the July low was the second consecutive and the highest since April 2017.
For the coming months, worse numbers are expected due to the deepening fall in purchasing power due to the new escalation of inflation and the effect of the rise to 60% of the Central Bank’s reference rate. From this increase, the financing rates were realigned upwards in all areas.
“The higher cost of financing affected the durable consumption,” says the Ministry of Production. Proof of this is that after almost two years on the rise, car registrations fell 25% and those of motorcycles dropped 30% in August. And the sales of household appliances had in July the first drop in a year and a half, with a decrease of 13%.
To the retraction of investment by the private sector is added the cut in spending set by the Government to meet the adjustment that will allow it to reach 2019 zero deficit. According to the Budget, the cut in public investment would be 0.56% of GDP on the Nation side, and an additional fraction on the provinces side. In a report on the impact of this measure, from the IERAL indicate that “it is key that these measures are transitory, applicable to the emergency through which the economy transits.”
With this scenario, the Government expects a product fall of 2.4% this year and 0.5% next year. With the deepening of the recession plus the high rates that the Central will maintain to try to lower inflation, the chances of investment leading the recovery of the economy are low. For consumption, the outlook is worse because of the destruction of purchasing power. Therefore, the main bet of the Government is export. The optimistic data handled by the Ministry of Finance say that external sales could grow 20% next year.
The high expectations for the next harvest after the devastating effect of this year’s drought is compounded by the positive effect of the devaluation.
From Production indicate that with the rise of the dollar, competitiveness increased 92% compared to November 2015 and 54% compared to December 2017. The effective real exchange rate, which adjusts for refunds and export duties, increased in August more than 23% and 45% compared to a year ago. While the bilateral real exchange rate with Brazil – our main buyer – depreciated almost 2% with respect to July and was 54% above the levels prior to the exit from the stocks.
A report from the Center for Regional and Experimental Economics (CERX) shows that the Indicator of Investment Trend (ITI) of industrial SMEs fell 14.5% in September and accumulates a drop of 42.7% in the nine months of the year. The ITI had a value of 35.3 points when it stood at 61.6 points in January. On a scale of 0 to 100, it shows that the investment trend since the beginning of the year shifted from a good situation to a bad point in September.