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Argentina consumer sentiment recovers, economic activity up, exports down

Staff Writer |
In July, the Universidad Torcuato di Tella (UTDT) consumer confidence index rose from June’s 42.0 to 42.5.

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The index is nevertheless still below the 50-point threshold that separates pessimistic from optimistic sentiment, where it has been firmly entrenched since February 2015.

Consumers are reacting with some volatility to recent economic news, as despite being back on track, the economy still suffers from numerous imbalances stemming from the previous administration’s economic policies, such as widespread unemployment, high inflation and a large fiscal deficit.

The latest available data shows that unemployment rose significantly in Q1 2017, despite the economy accelerating and registering its third quarter-on-quarter expansion in a row.

Moreover, the tight stance of the Central Bank, albeit effective in bringing down inflation, may be weighing on consumer sentiment.

In July, consumers were far more willing to make major purchases than in the previous month, especially of houses and cars, which bodes well for private consumption.

On the other hand, their outlook regarding their future personal situation deteriorated somewhat and their assessment of the country’s short-term macroeconomic prospects weakened substantially, probably influenced by the mixed signals sent by the economy.

However, their assessment of the country’s long-term macroeconomic prospects improved, a signal that consumers are more confident that current economic policies will eventually bear fruit.

Panelists surveyed for the LatinFocus Consensus Forecast see private consumption rising 2.9% in 2017, which is unchanged from last month’s forecast. For 2018, panelists expect private consumption to increase 3.0%.

In May, the monthly indicator for economic activity (EMAE, Estimador Mensual de Actividad Económica) rose 3.3%, the fastest rate in one and a half years well above April’s revised 0.5% expansion (previously reported: +0.6% yoy).

The fishing, construction, restaurants and hotels and transport and communication sectors recorded the strongest annual improvements.

In contrast, the mining and quarrying and electricity, gas and water sectors posted the largest year-on-year contractions.

A month-on-month comparison showed that economic activity expanded 0.6% in May, contrasting April’s revised 0.2% increase (previously reported: 0.0% seasonally adjusted month-on-month).

On average, economic activity decreased 1.4% in the 12 months up to May, which is an improvement from the 1.9% drop in the 12 months up to April.

Our analysts project the economy to rebound and expand 2.9% this year, which is down 0.1 percentage points from last month’s forecast. For 2018, panelists expect the economy to expand 3.1%.

In June, exports dropped 2.6% from the same month last year, contrasting May’s subdued 0.8% increase.

Exports declined on the back of lower prices and overall export volumes.

As for the different product categories, exports of primary products, agricultural manufactures and fuels and energy fell, more than offsetting an increase in exports of industrial manufactures.

As for the export markets which contributed the most to the fall in exports, exports to China, India, Venezuela and Vietnam diminished the most, with the fall in exports to China mainly explained by lower sales of soya beans.

On the other hand, the export markets which grew the most were Chile, the United States and Finland.

On a monthly basis, exports fell 4.4% in seasonally adjusted terms in June, contrasting May’s revised 1.6% expansion (previously reported: +1.7% month-on-month).

Imports jumped 15.4% annually in June, below May’s impressive 24.0% expansion. The trade balance therefore worsened from a $173 million surplus in June 2016 to a $748 million deficit in June 2017.

In the 12 months up to June, the trade balance posted an accumulated shortfall of $1.2 billion, which followed the $0.3 billion deficit recorded in the 12 months till May.

Panelists participating in the LatinFocus Consensus Forecast expect exports to expand 5.9% in 2017 and imports increasing 8.9%, thus pushing the trade balance to a $0.80.6 billion deficit.

For 2018, the panel expects exports to increase 6.6% and imports to expand 7.7%, with a trade shortfall of $1.60.0 billion.


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