Some Green Shoots Emerge in Argentina’s Recession-Hit Economy

By Gram Slattery

BUENOS AIRES – At a recent agricultural fair in Argentina, manufacturers of threshers, tractors, and harvesting combines experienced an unexpected surge in demand, even amidst a challenging economic landscape marked by recession and high inflation.

"We’ve sold much better than we anticipated, but the problem is that we were planning too conservatively," said Marcos Formica, an engineer with the manufacturer Mainero, during the La Rural fair held last month. "We intended to sell a limited number of machines, but the actual sales exceeded our expectations. We’ve missed out on some sales due to insufficient stock." As a result, Mainero is now looking to ramp up production two months earlier than originally scheduled for the upcoming season.

Government statistics indicate that sales of agricultural machinery—a crucial indicator for the farming sector—reached 3,004 units in the first half of the year, marking a 7 percent increase compared to the same timeframe in the previous year.

Despite considerable pessimism surrounding Argentina’s economy, there are signs of improvement in other sectors. A recent upturn in consumer confidence suggests that some citizens are beginning to anticipate a recovery under President Mauricio Macri, who has implemented several pro-business reforms since taking office in December, following 12 years of left-leaning governance.

Macri’s administration has made significant changes, including devaluing the peso, lifting price controls, and increasing utility costs. However, these measures have yet to effectively curb inflation or alleviate the difficulties faced by the country’s poorer population.

In contrast, real estate developers report growing demand in the upscale commercial and residential markets, with an increase in construction permits recently observed in terms of square footage. Billionaire investor Eduardo Costantini mentioned his interest in acquiring a substantial property in Buenos Aires.

Salaries for top-tier wealth management professionals have surged by as much as 35 percent in real terms over the past few months, as banks aim to attract back Argentines who have previously relocated to global financial hubs like New York and London, according to Nicolas Rocha, an executive manager at a headhunting firm.

Macri believes that Argentina is beginning to see a rise in investment, which he asserts will lead to the economic revival he has promised, particularly as inflation begins to stabilize. "This will create stability that strengthens the investment process, ultimately generating jobs," he stated during an interview at the presidential palace.

The president projected a 3.5 percent growth for the economy in 2017 and expressed optimism regarding Argentina’s agricultural sector, which is a global leader in soy, corn, and wheat production. He noted that farm investment is already on the rise and anticipated increases of between 25 and 40 percent in the next crop season, describing it as a significant leap in productivity.

However, important segments of the Argentine economy continue to struggle. The International Monetary Fund and various economists predict a contraction exceeding 1 percent for this year. Manufacturing output fell by 6.4 percent in June compared to the same month the previous year, following a 4.5 percent decline in May. Construction activity decreased by 19.6 percent in June and 12.9 percent in May, year over year.

Consumer prices increased by 3.1 percent in June and 4.2 percent in May. While the government has promised a steady decline in monthly inflation, analysts predict that the annual inflation rate will still end the year at approximately 40 percent.

Facundo Gomez Minujin, the executive director of JP Morgan’s Argentina division, noted that although the Macri administration is taking the necessary steps, the recovery and influx of new investment may unfold more slowly than anticipated. "There is significant interest in investing in the country, but real investment requires time and is always a lengthy process," he remarked at the summit.

Some Argentines are growing impatient and have taken to the streets to protest rising home heating bills following Macri’s cuts to energy subsidies. The number of individuals relying on free soup kitchens in Buenos Aires has doubled since the beginning of the year.

In the working-class neighborhood of La Boca, residents lament that the combination of soaring prices and the removal of electricity subsidies has put them in dire straits. "It’s bad, a disaster," remarked Eduardo Jovanian, a middle-aged shopkeeper. "It’s hard to remain optimistic because utility rates have risen significantly, and people simply can’t afford to pay."