Eleven reasons why 2019 will be worse than 2018


The next setting

As voted in Congress, the budget for 2019 will have a 2.7% reduction in relation to GDP. This was agreed by the government with the IMF in the second agreement. So if an economy under normal conditions is subjected to such a terrible cut, the logical thing is that your product falls –ceteris paribus– in the same magnitude. So next year GDP is already guaranteed a 2.7% collapse without considering all the negative effects that will multiply due to this adjustment (less public works, less payment to suppliers, less wages, less consumption, etc.).

The current drag

The economic decline that the country is experiencing, according to minister Dujovne's own words, will cause 2019 to begin with a fall of 3.3% of GDP. That is, the trend is depressing all the variables: investment, consumption, expenses, wages, activity and others. Thus, if the announced adjustment is added to the current dynamic, prospects continue to worsen the economic slump seem to have no end: the activity, instead of finding a floor, will continue to fall.

Absence of motors

The current brutal economic recession combined with the next adjustment will not be alleviated by a change in the trend of the cycle: there are no engines for such a thing. The Government maintains that the next harvest and the growth of exports can sustain as expansive elements (drivers) therefore. The problems of such a proposal are several. One is that neither the countryside nor the exports proved to be sufficiently powerful factors in themselves to modify the economic cycles in Argentina, much less with the current declines and trends.

The international context

The foreign sector seems to play against Argentina next year, so you can not expect anything good either. To begin with, we are moving to a less liquid world: the Federal Reserve will almost certainly raise its interest rates again by 2019 (it is expected to do so at least twice, although a month ago if it was expected to be done three times). The European Central Bank and Japan will also raise their benchmark rate. For its part, it is more than likely that the trade war between the powers will continue, thus increasing tariffs and closing the markets. This will cause prices of Argentine products to fall. While our main economic partner, Brazil, after the assumption of Bolsonaro, will certainly play against our country, either by a devaluation, an approximation to the powers, the weakening of the Mercosur or an adjustment that makes the country of Rio de Janeiro follow hiring, reducing the demand that could come from there.

Electoral uncertainty

During 2019, gubernatorial elections will be held in almost all provinces (beginning the calendar in February) and by the end of the year there will be a presidential election. This will allow markets to react to results, candidates and research. This will add to volatility, mistrust and a nervousness that will not be good for the economy. The dollarization of portfolios will probably be in order for the day, seriously depressing the foreign exchange market and causing the profitability of Argentine assets to fall. At the same time that the capital flight will be very strong: if in 2018 almost $ 30 billion were gone, in an election year certainly that number will be even greater.

Fears of default

For electoral uncertainty, it is also necessary to add the growing fears to a virtual standard for three reasons. The first is that the country is currently in technical default, since it does not have sufficient resources to continue paying the debt on its own. If it has not yet formally entered default, it is because of the IMF's help. The problem is that aid will disappear by 2020, raising doubts about the future. Secondly, just as we do not know how the country will continue to pay the debt in 2020, we also do not know who will govern or whether we will continue to pay. Finally, many fear that the government not to lose the election will start to spend more, do not reach the zero deficit and, therefore, the IMF will withdraw the aid, thus triggering the feared so feared.

Consumption drops

This year, real wages will have fallen by about 17% and pensions by 20%. By 2019, the government wants to impose a 23% parity when inflation expectations are more optimistic than 28%. That is, new real pay falls seem projected, as well as rising unemployment. The government said that next year consumption would fall "only" by 5%, when it accounts for almost three-quarters of GDP. If it continues to fall, its collapse will undoubtedly wreak havoc on the product.

Chart ZĂ­cari 26122018.jpg

Fragility of the coin

This year the foreign exchange market had 4 surprises, which cost the Central Bank nearly $ 35 billion of its reserves. If there were situations of exchange rate pressure or political uncertainty next year, the shocks could come back. Although with one difference: the government practically tied its hands in its new agreement with the IMF on its possibility to intervene. That is, if there are races, they may not be able to be detained, distorting all inflationary, wage and social patterns. Creating greater instability and uncertainty.

Ghosts of Disasters

For fear of default, several analysts add the question of how the government will cancel the next maturities if renewal rates fall below 54%, which is the money ceiling that would be covered by the Fund's money: at a rate of small reforms, the government will be in trouble. For this reason, some speak of a mandatory Bonox-like bond exchange as a drastic solution, others a systematic issue to pay bills at the expense of triggering a hyper, some think that exchange rate return will be the last resort against virtual races of exchange, at the same time, speaking of the ghost of the corralito so that the present fixed terms do not leave the system or pass to dollars. These ghosts, though they seem distant, the mere existence of their rumor can have unpredictable consequences.

High local rates

The government has promised to maintain high interest rates by the middle of next year. In turn, the country risk has not stopped rising and the incomes of the Leliqs seem unable to descend even further. With such high interest rates and mistrust rates, the real economy will be crushed, debt will rise and the financial deficit could become explosive. At the same time, the chain of payments and late payments may end up knocking over everything. Obviously, this is a central problem that does not seem to be resolved in 2019 because it is a year of electoral uncertainty that will continue to complicate the future scenario.

The financial income tax

This tax will come into force at the beginning of 2019 and will have a rate of 5% for investments in pesos and 15% for investments in dollars, positions adjustable by the Reference Stabilization Coefficient (CER) or the Acquisition Value Unit (UVA ). When a similar tax began to govern in April 2018, the bullfights began, which ended up burying the gradualist program: it was a bullfighting engine. History teaches that when you take the same steps, you have the same consequences.

In summary, as we see, there are eleven powerful reasons not to expect anything good next year in economic terms, but rather the opposite. The mere existence of only one of these reasons can guarantee a bad year of 2019. But give 11 reasons so that all together make us worry about what will happen. I hope the government is willing to act and prevent these eleven dangers from causing harm.


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