Thursday, February 2

Systemic crisis: How many years of your life were you in economic recession?


“My grandfather was born in 1931. If he were still alive, today he would have spent 33% of his time in recession. My dad (1959) endured 24 years (38%) with falling GDP. I (1986) spent 15 years (42 %) in recession. My daughter (2019) lived 67% of her life with the economy falling,” the economist said on his Twitter account. Quickly, his graphic generated impact and endless comments.

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But what is an economy in recession? An economy in recession is an economy that generally decreases economic activity and is measured through an interannual rate of Gross Domestic Product (GDP). Its main characteristic is that it is measured over a significant period of time. The truth is that the country’s economy kept its economic variables consecutively in decline or in recovery from what was lost the previous year. The variables that are contemplated to think about an economy in recession are the following: the production of goods and services, consumption, investment, employment, the profitability margin of companies, the price of stock indices, and above all inflation. If the recession is abrupt, it can be considered that we are talking about a crisis, something that happened in 2001. But in the Argentine case, the recession seems to be consolidating.

Is Argentina growing?

According to a report by the consulting firm Ecolatina, Argentina has not grown steadily for ten years. If it did so in the next ten at the average rate at which the region grew between 2011 and 2019 (+2.5%), only in 2032 would it recover the GDP per capita of 2011. “Beyond this, the point is that, even in the bright future, it will take us at least a decade to get back to previous highs,” they noted.

However, the region was not in the same situation: GDP per capita grew 3.6% between 2011 and 2019. As a result, Argentina ranked 175th out of a total of 192 countries in the growth ranking for the decade in question. .

The consultancy indicates as the beginning of the stagnation the tensions with the foreign exchange market in 2011 and 2012 that were “resolved” through the stocks, postponing a more lasting solution. “Instead of promoting fundamental corrections, the foreign exchange market restrictions were used to make the official dollar cheaper, thus boosting the purchasing power and consumption of families,” said the consultant.

In the medium term, the objective was achieved. “However, beyond this good performance, and partly as a result of the causes that gave rise to it, the rest of the components of demand deteriorated and the GDP of 2015 was only 1.5% higher than that of 2011”, highlighted the report. However, considering the population growth of the period, the GDP per capita marked a fall of almost 5% in the period 2011-2015.

Ecolatina mentioned that in December 2015 the Argentine economy had liabilities on the fiscal and exchange side, in addition to relevant distortions in relative prices. However, it had a low level of relevant public debt. The government headed by Mauricio Macri, according to the consultant, was able to achieve growth in the first half of his term, where the GDP grew by almost 3% between 2016 and 2017.

“However, a rapid increase in debt in a country that was not solving its underlying problems stopped the inflow of private capital at the beginning of 2018, and then caused a constant outflow of these investments during the following year and a half,” they assured. The current account deficit equivalent to 5% of the GDP and a debt in foreign currency that grew by US$80,000 million in two years, marked the need for foreign currency that did not appear. To prevent a devaluation, the government turned to the IMF in May 2018.

The main challenge for Argentina is to achieve growth over the next ten years at the average rate at which the region grew between 2011 and 2019 (+2.5%). Only in 2032 could the GDP per capita of 2011 be recovered.”The situation is difficult, but the results are not set: it is never too late to grow again and begin to resemble the global norm more than being the exception. The future is never determined or doomed”, concluded Ecolatina.



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