Javier Milei’s administration is endeavouring to instill confidence in the markets as apprehensions mount regarding a potential economic recession on the horizon. Concurrently, investors are placing heightened emphasis on the electoral prospects of the libertarian president. In light of recent developments, two indicators published in the past few days have contributed to a resurgence of optimism, albeit to a limited degree. Initially, the Consumer Confidence Index, as reported by Torcuato Di Tella University, experienced a month-on-month increase of 0.8% in October, building on a prior rise of 2.4% in September. Regionally, the enhancement was propelled solely by the City of Buenos Aires, where the index experienced a notable increase of 6.8%, effectively counteracting a decline of similar proportions in the preceding month.
Historically, the ICC has demonstrated a strong correlation with trends in the Government Confidence Index, which is set for release on Monday. This index, in turn, acts as a valuable gauge of support for the ruling party in upcoming elections. However, there are uncertainties regarding the persistence of the correlation between the two indices. “Although the ICC and ICG have historically tended to move in the same direction, this relationship has decoupled in recent months,” analysts wrote in their latest report. In September, consumer confidence experienced an increase of 2.4%, whereas confidence in the government declined by 6%. In July, a contrasting trend was observed: the ICC experienced a decline of 1.1%, whereas the ICG saw an increase of 6.4%.
The other positive indicator for the government was INDEC’s August wage data, which demonstrated an enhancement in real terms. Wages in the registered sector experienced a month-on-month increase of 2.6%. After accounting for inflation, they rose by roughly 0.9%. “If this recovery is sustained, it could provide some relief for consumption and, in turn, for the retail and services sectors,” brokerage firm Cohen Aliados Financieros said in a recent report. However, the firm warned that the recovery might “not come in time.” With elections a year away, an economy that “fails to take off” could “weigh on public sentiment and put upward pressure on the country’s risk premium.” Indeed, Argentina’s country risk index closed at 710 basis points, reflecting a 17% increase thus far in October and diverging further from the July low of 400 points.
Economist Gustavo Ber, who specialises in financial markets, indicated that political signals are drawing “the most attention” from the market, as investors “have been showing less sensitivity” to economic data. He added that the perspective that the state of the economy is unlikely to change sufficiently to enhance the government’s electoral prospects is “gaining consensus.” Perhaps that is why Milei acknowledged on Thursday that “Argentina’s indicators are not looking as good as they used to,” although he insisted on “how great a change” his administration has achieved since taking office. “The snapshot is horrible, but the movie is the best in history,” he said, defending his administration’s record on poverty, inflation and public safety. “I am the first president to bring inflation down,” he declared on his 56th birthday.
