Fynsa
The Central Bank reported that the economy grew 1.0% in July compared to the same period last year, which was in line with expectations. This rate of growth is the lowest since February 2021 and, with a high degree of probability, will be the last positive growth figure we see in this cycle. There are several reasons for this, which I will try to explain below.
First of all, it comes as no surprise to anyone (or at least, it shouldn’t) that economic activity is undergoing a significant slowdown across all sectors. This is clearly evident when we analyze the change from the previous month, adjusting for seasonal effects. This series fell by 1.1%, and although this is not the first decline we’ve seen, it is the steepest since May 2020—a time when we were experiencing one of the most intense periods of lockdown measures due to the pandemic. I mention this so that those unfamiliar with the magnitude of these changes can fully appreciate the significance of these results. If at one point we were struck by how resilient certain sectors of the economy were, we are now surprised by how quickly they have deteriorated.
This brings us to our second point: the sectors. Trade and Services—the sectors that accounted for much of the boom and overheating of our economy in 2021—lead the negative trends in the seasonally adjusted analysis. Although year-over-year it may appear that Services is still experiencing positive momentum, the truth is that this is solely due to the (still) low base of comparison, which is already in its final days—or months. We find this extremely relevant, because the rest of the sectors have not experienced an expansion of this magnitude recently, and the fundamentals do not seem to indicate that this will change in the near future. As a result, economic activity is left without growth drivers.
Finally, and probably the least appealing, is something I mentioned regarding Services, but which is already a reality for the rest of the sectors. The comparison becomes extremely challenging , and that will affect the year-over-year changes in the coming months. Thus, with a low (though never zero) probability of error, we forecast that July would have been the last month of positive growth and that, starting in August, we will see year-over-year declines when the Central Bank releases the IMACEC figures. This effect will not only impact August or September, but possibly extend into the third quarter of next year.
There is no doubt that the outlook faces significant uncertainty, not only due to local factors but also to external ones—especially those stemming from the economic slowdown that developed countries are also experiencing and the interest rate hikes they are implementing to combat inflation. However, we do not believe this will lead to dichotomous scenarios for the GDP data we will see in the future—or at least not until well into next year. As Friedman said, there’s no such thing as a free lunch, and boy, is this one costing us dearly.
