Fynsa
The Central Bank reported that the economy grew 1.0% in July compared to the same period last year, which was within expectations. This variation is the smallest since February 2021 and, with a high probability, will be the last positive growth figure we will see in this cycle. There are several reasons for this, which I will try to explain below.
Firstly, it comes as no surprise to anyone (or at least it shouldn't) that activity is undergoing a significant slowdown across all sectors. This is clearly evident when we analyze the variation compared to the previous month, eliminating seasonal effects. This series fell by 1.1%, and although it is not the first decline we have seen, it is the highest since May 2020, when we experienced one of the most intense periods of lockdown measures as a result of the pandemic. I mention this so that those unfamiliar with the magnitude of these variations can appreciate the significance of these results. If at one point we were struck by the resilience of some sectors of the economy, we are now surprised by how quickly they have deteriorated.
This brings us to our second point: sectors. Trade and Services, which accounted for much of the boom and overheating of our economy in 2021, lead the negative incidents in the seasonally adjusted analysis. Although year-on-year it seems that Services are still experiencing positive momentum, the truth is that this can only be explained by the (still) low basis of comparison, which is now coming to an end. Or months. We believe this is extremely relevant, because the rest of the sectors have not experienced an expansion of this magnitude in recent times, and the fundamentals do not seem to predict that this will change in the future. Thus, the economy is left without engines of growth.
Finally, probably the least attractive, is something I mentioned about Services, but which is already a reality for the rest of the sectors. The comparison becomes extremely demanding and this will affect year-on-year variations in the coming months. Thus, with a low (though never zero) probability of error, we predict that July will have been the last month of positive growth and that, starting in August, we will see year-on-year declines when the Central Bank publishes the Imacec figures. This effect will not only impact August or September, but possibly even the third quarter of next year.
Undoubtedly, the scenario faces significant uncertainty, not only due to local factors, but also external ones, especially those derived from the slowdown that developed countries are also experiencing and the rate increases they are implementing to combat inflation. However, we do not believe that this will lead to dichotomous scenarios for the GDP data that we will see in the future, or at least not until well into next year. As Friedman said, there is no such thing as a free lunch, and this one is certainly proving to be an expensive one.
