Monday
January 23, 2017

Industries look set to continue suffering

Friday, December 9, 2016

Argentine recovery stunted by Brazil’s dragging recession

Vehicles sit parked in a lot at a General Motors vehicle factory in São José dos Campos, São Paulo state, Brazil.
By Francisco Aldaya
for the Herald

Public works and investment could boost local economy next year, but certain industries look set to continue suffering


by Francisco Aldaya
For the Herald
@franaldaya

Argentina’s trade deficit with its main trade partner, Brazil, rose a whopping 78.6 percent to US$4.015 billion during the first 10 months of the year, according to the Argentine Chamber of Commerce and Services (CAC).

Trade between the two Latin American powerhouses amounted to US$20.354 billion in the same period, representing a 5.7 percent decrease on January to November of 2015.

As the neighbouring giant continues to struggle in the wake of a year of political upheaval and arguably its worst recession in a century, trade has clearly taken a huge blow. But ascertaining which of the two economies was most affected by this decrease in trade isn’t so clearcut.

While Brazil cut purchases from Argentina by 15.5 percent up to October, Argentina’s imports from the continent’s largest economy rose by 2.3 percent in the same period.

In 2015, Brazil’s total imports from all countries had already dropped 24 percent on 2014, and with the Brazilian Central Bank recently correcting its growth forecast for 2017 to a mere one percent, it doesn’t look like Argentina will be able to benefit from higher demand across the border.

President Michel Temer undeniably holds more of a market friendly approach than his predecessor, Dilma Rousseff, but the new head of state hasn’t held up imports from Argentina.

This begs the question of whether the Argentine economy can grow in spite of recession in Brazil.

Recovery on the horizon?

For CAC’s chief economist Matías Wilson, the Argentine economy certainly “depends significantly on Brazil.”

“Our exports to Brazil are very sensitive to how their economy is faring, more so than to the exchange rate, and vice versa”, he told the Herald, adding that “both countries have fairly similar economic cycles and structures.”

Wilson also pointed out that although the diversification of Argentina’s export destinations is needed, “it would be a long-term process.” So considering that “Brazil is our natural partner, we need a common strategy and concerted efforts to uphold both our interests,” he added.

“If Brazil doesn’t fare well, our exports suffer, as we’ve seen this year”, Wilson remarked, adding however that the effects on the economy of this decline in trade with Brazil “will surely be counteracted next year with some sort of stimulus policy for domestic consumption and infrastructure works.”

For Wilson, nonetheless, “Brazil has already shown solid signs of overcoming its crisis, and next year there should be growth” on that side of the border.

Exports to Brazil — a fifth

of the total

Carlos Belloni, an economist at Austral University’s IAE Business School, agreed that “the economy will grow due to next year’s elections, regardless of what happens in Brazil.”

“The Argentine economy will be propelled predominantly by an increase in public spending and investment, but Brazil’s own performance will be crucial in determining the magnitude of our recovery, of course,” he continued.

For the economist, “Brazil’s growth next year will be meagre, meaning that it will cease to be a weight on the Argentine economy, albeit only to become a neutral factor. With regard to trade “preventing a real appreciation of the peso will be key in boosting Argentine exports,” including those to Brazil, which “represent a fifth of the total.”

The automobile sector in particular depends significantly on Brazil, considering that 80 percent of its exports head across the border.

Eduardo Luis Fracchia, another economist at the IAE Business School, also warned that “many sectors of the Argentine economy will be affected if a mild recession perseveres in Brazil, but the economy could still grow as a whole.”

Both Macri and Temer will hope to see the 10.7-percent interannual increase in the total traded between the countries during the month of November — up to US$2.079 billion — as a starting- point toward the recovery of trade between the nations.

 

Argentina’s Top Ten Exports to Brazil This Year

(In US$)

1. Motor vehicles
2. Cargo vehicles
3. Wheat grain
4. Parts and accessories for motor vehicles and tractors
5. Polymers of ethylene, propylene and styrene
6. Whole Malta or heading, without roasting
7. Vegetables prepared / preserved with acetic acid
8. Other manufactured goods
9. Corn
10. Dried black beans
SOURCE: CAC

Brazil’s Top Ten Exports to Argentina This Year
(In US$)

1. Motor vehicles
2. Cargo vehicles
3. Parts and accessories for motor vehicles and tractors
4. Other manufactured goods
5. Tractors
6. Polymers of ethylene, propylene and styrene
7. Tyres
8. Engines, motor vehicle and parts
9. Flat-rolled products of iron or steel
10. Motorised chassis and bodywork for motor vehicles
SOURCE: CAC


@franaldaya

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