The three headwinds the economy faces due to the coronavirus

In announcing Thursday night “preventive and mandatory” isolation to reduce the spread of the coronavirus pandemic, President Alberto Fernández acknowledged that this measure will have economic consequences.

According to a report prepared by the economist Jorge Day, from the Institute of Studies (Ieral) of the Mediterranean Foundation, there are three headwinds that are simultaneously blowing the country’s economy, in a context that marks almost two years of recession in Argentina.

Internal market. “The coronavirus negatively impacts in two ways: it reduces the country’s productive capacity (fewer people work, and possibly productivity suffers, by not working in its usual place), and by panic, consumers reduce their spending on certain products, especially those whose consumption can be postponed (cars, appliances, clothes) ”, describes Day.

External market. “Usually, in the face of an internal crisis, the external market offers a hand. This is not the case today, because the impact of the epidemic is global, and it is even worse in other countries. In this way, it is likely that international trade will be reduced, not only in quantity but also in lower prices ”, adds the researcher.

An example is soy, which is at one of its worst values ​​in the last 15 years. The same applies to oil, which after the collapse of recent weeks, investments in Vaca Muerta become unfeasible.

This fall in the global economy also has an impact on a lower flow of international tourism.

Finance. “And if that were not enough, there will also be no state aid. The coronavirus harms government finances in two ways: it increases public spending on health and assistance to vulnerable sectors, and it reduces tax collection, due to less activity and more delinquencies, ”completes Day.

On this point, remember that Argentina is already accumulating a significant recession that reduces tax collection, in the midst of a relevant electoral period in which public spending increased.

In conclusion, “the epidemic comes at a very bad moment in public finances. And to that, the threat of default is added, which implies an almost zero probability of accessing financing via debt, ”summarizes the economist.

By regions

Under this scenario, Day analyzes how the economy of the main Argentine regions could behave.

According to his evaluation, the most affected would be Patagonia, due to its dependence on oil. “Since the end of last year there has been a decrease in activity in the most dynamic area, Vaca Muerta, which, with these low prices, will aggravate its situation,” he says.

In addition, it is also one of the most visited areas by foreign tourists, which adds an additional problem. And also several Patagonian jurisdictions are the ones with the worst state in their finances.

With regard to Córdoba, it is no stranger to the critical situation, although the damage it could suffer is less than that of the southern jurisdictions.

It is one of the provinces with the largest share of exports over its GDP, but it depends more on grains, which, although they have fallen, have done so to a lesser extent than oil.

As for tourism, the proportion of foreign visitors is low over the total activity, it is low.

Regarding finances, although the data for the third quarter of last year show a significant fiscal deficit, it is not as serious as that of several northern provinces in which, in addition, the public sector has greater weight within the economy.

Written by Argentina News

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