‘Milei effect’ brings exports to Argentina down; record revenue untouched

Jul, 08, 2024 Posted by Gabriel Malheiros

Week 202427

Brazilian exports to Argentina, one of the country’s main trade partners, shrank by 37.6% in the first half of this year compared to the same period in 2023. In June alone, shipments to Argentina shrank by 50.6%, according to the Ministry of Development, Industry, and Commerce (Mdic).

Despite the decline in Argentine demand for Brazilian products, Brazil’s total export value in the first half of this year was the highest in the historical series. Revenues reached US$167.6 billion, surpassing the previous record of US$165.2 billion from the same period in 2023.

In an interview with the press last Thursday, the director of Planning and Commercial Intelligence at Mdic, Herlon Brandão, acknowledged that Argentina’s economic struggles had negatively impacted Brazilian exports. However, he highlighted positive trends in shipments of other items and to other destinations. Brandão cited growth in oil, iron ore, sugar and molasses, and cellulose exports, which supported record sales throughout the first six months of this year.

Significant losses came from sectors linked to the manufacturing industry. Exports of vehicle parts and accessories fell by 26% compared to last year, while the passenger car segment saw a 14% drop. Exports of piston engines and their parts declined by 24%, electrical machines and appliances by 12%, footwear by 29%, and tires by 36%.

The most significant drop was in soybean exports, which contracted by 96%, resulting in a loss of US$1.49 billion. This was due to the normalization of Argentine soybean production, which had suffered from adverse weather events last year, forcing the country to import the commodity from Brazil.

See below the export volume from Brazil to Argentina registered between January 2021 and May 2024. The data is from DataLiner.

Export Volume to Argentina | Jan 2021 – May 2024 | WTMT

Source: DataLiner (click here to request a demo)

The Milei factor

Experts consulted by Estadão/Broadcast indicated that President Javier Milei’s economic measures, which have slowed down economic activity in Argentina, exacerbated the trend of declining shipments of Brazilian products. Argentina’s Gross Domestic Product (GDP) sank by 5.1% in the first quarter of the year.

“When you cut public spending very abruptly, which is an important component of GDP, as Milei did, you bring about a recession,” explains CM Capital economist Matheus Pizzani. “An abrupt recession like this undermines confidence and disrupts trade with Brazil,” he adds.

In addition to the slowdown in activity, Argentina has faced a shortage of dollars for making payments, further harming bilateral trade with Brazil, as pointed out by André Galhardo, chief economist at Análise Econômica. “With less international liquidity, Argentina should limit itself to importing what is essential and stop having a trade deficit with countries like Brazil to generate surpluses and earn dollars,” explains Galhardo.

The president of the Foreign Trade Chamber Association (AEB), José Augusto de Castro, expects Brazil to record a trade deficit with Argentina this year, importing more products from the neighboring country than exporting. “Under normal conditions, this relationship is a surplus for Brazil,” says Castro.

According to the Mdic, Brazilian exports to Argentina in the first half of the year totaled US$5.882 billion, below the total imported value of US$6.073 billion. The last time Brazil had an annual trade deficit with Argentina was in 2021, when imports exceeded exports by US$70 million.

Anfavea, an association representing automakers, acknowledges that Argentina has lost power as a consumer of cars produced in Brazil. However, it considers this moment of “adjustment” and “belt-tightening” in 2024 as expected, given the impact of Milei’s measures. “Our biggest concern today, in exports, comes from drops or loss of market share in other countries, which were doing well, such as Colombia, Chile, and Mexico,” the entity stated in a note to Estadão/Broadcast.

The association also notes that Argentina’s share in the purchase of Brazilian vehicles has been falling for some time. “Trade with Argentina once accounted for 70% of our exports; today, it is somewhere between 20% and 30%.”

Short term recovery unlikely 

For Galhardo, from Análise Econômica, the “shock” promoted by the Milei administration is quite harsh, leading him to question how long Argentina can sustain such depreciated economic activity. He predicts that relief in austerity policies could contribute to the resumption of Brazilian exports to its neighbor.

“But it is likely that over the next two years, this trend will not change,” says Galhardo, emphasizing the overall uncertainty regarding the next steps of the Argentine economy. “In any case, it will take time for Argentina to resume its prominent role in Brazilian exports as seen in recent decades,” he adds.

Castro, from AEB, suggests that what could “save” the Argentine economy in the short term is a positive shock in the international prices of commodities the country exports, such as soybeans, corn, wheat, and meat. This would increase Argentina’s international reserves and stabilize its economy. “The need to produce trade surpluses in Argentina should continue in the coming years. An increase in the price of commodities could help because otherwise, Argentina must continue cutting its imports,” reflects Castro.

Source: O Estado de S. Paulo

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