By Sam Pothecary, Buenos Aires, staff writer for The Bubble.
Prepare yourselves for another onslaught of depressing decimal numbers and confusing acronyms, because word on the economic geek street is that Argentina is entering a recession. The national statistics agency, the INDEC, announced on Friday that in the first quarter, the Argentine economy contracted for the first time since the third quarter of 2012, as gross domestic product fell 0.9 percent.
Given the economic climate of Argentina over the past few years, this news is confusing for a number of reasons. Most importantly, though, if the economy just started to contract now, does that mean it was actually growing for the past two years?
Before you sit there with a furrowed brow trying to figure out how much skillful manipulation of economic statistics went into writing this report, just remember that it came from Argentina’s national statistics agency. Yes, they’re a little late in recognizing that things could be going better for us here, but better late than never.
But the Argentine government officials aren’t the only ones giving us surprising news. More alarming is that Bloomberg economists had estimated a growth of 0.8 percent for March, while Reuters economists had forecast a growth of 0.4 percent for the same period.
The report also states that this is the first time that the Argentine economy has contracted since September 2012, which has got a number of economic experts all discombobulated and hot under the covers, because the contraction coincided with the government’s devaluation of the peso and increased interest rates (which supposedly means the contraction shouldn’t have happened).
I have to ask, if these economists didn’t predict 2008′s quilombo of a global economic meltdown, why are we still listening to them? It’s quite possible that your average Buenos Aires taxi driver could tell us more about the reality of the Argentine economy than any of these “experts” can.
So what, according to the report, caused this sudden economic contraction?
Firstly, Brazil, the South American economic juggernaut and Argentina’s top trade partner, has seen its own economy slowing in recent months, which has inevitably had negative effects on Argentine exporting.
Secondly, the government’s dicey decision to issue more bank notes has resulted in a surge in interest rates for credit cards and loans, thus partially paralyzing consumption in the country.
And thirdly, in an attempt to preserve the country’s dwindling dollar reserves, the government decided to put higher restrictions on imports, which has had negative consequences on a number of Argentine industries, especially in electronics and construction.
There’s no doubt that all of these forces have slowed growth in the Argentine economy. But one can’t help but doubt the reasoning behind claims that the economy was stable from September 2012 until now, especially in the face of huge peso devaluations, continued unemployment, strikes, protests, rising poverty and crime. What are the actual facts behind the cryptic figures constantly being rammed down our throats? Anyone who lives here can tell you that the past few years have felt anything but stable.
Argentina has grown accustomed to approaching statistics with caution. Just a week ago, the government admitted that they had ‘overestimated’ growth figures between 2007 and 2013 amidst threats of sanctions from the International Monetary Fund. Of course, using the term ‘overestimated’ is a fairly feeble attempt at disguising flagrant lies, which in some instances were pretty substantial: “revisions” of the state’s 2008 growth figures showed that the 6.8% growth was actually 3.1%. Whoops!
Assuming that these new findings are correct, and that the economy has begun to contract once again, what does it mean (if anything new at all!), and how many alarming, sensationalist news reports can we expect to wade through during our morning cereal? Well, as it happens this has all come at a bit of a bad time, as Argentina faces soaring inflation and bleak unemployment rates, on top of plummeting Central Bank reserves (they fell 28% in the past year, and now stand at a depleted $28.4 billion).
The Wall Street Journal’s MarketWatch has given their ominous yet somewhat expected verdict that “this confirms the country is moving towards a recession.” Even more conclusively, the Argentine national newspaper El Pais, and economic publication elEconomista, have both reported that the Argentine economy is now officially in recession, after seasonally adjusted figures show that the economy actually declined in the final quarter of 2013.
So, like a drunken uncle climbing back over the garden wall, a recession might have breached our borders once again to cause incoherent havoc in a country whose 2001 economic collapse still haunts its citizens. But then again, maybe it hasn’t. Maybe this “news” really isn’t news to us at all. Maybe we should all carry on and go about our business as usual, because while nobody wants to experience yet more crippling economic woes, nobody wants daily rundowns of fanciful, statistical forecasting when a weekly trip to the supermarket tells us quite enough about the state of our economy. The price of milk doesn’t lie, but politicians do. By Sam Pothecary, The Bubble
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.