Brazilian industry wary of ‘Milei effect’ on sales to Argentina

The deteriorating Argentine crisis is already affecting some sectors of the Brazilian economy. Representatives from associations linked to manufactured products reported a decline in exports this year and expressed concern over potentially worsening shipment figures until December, when Argentines will decide on the country’s new president.

Furthermore, potential government measures to curtail the flight of dollars could potentially complicate trade relations between Argentina and Brazil, according to an expert.

A day after the unexpected victory of far-right candidate Javier Milei in the presidential elections in October, the Argentine central bank decided to increase the interest rate by 21 points, reaching an annual rate of 118%, and hiked the official dollar exchange rate by 22%, resulting in 350 pesos/1 dollar exchange rate.

Brazil’s Third Largest Trading Partner

In the short term, the measures aimed at stemming the outflow of dollars from Argentina might intensify the challenges of Brazilian trade with the country, predicts Lia Valls Pereira, a researcher at FGV IBRE and an expert in foreign exchange.

The economist underscores that Argentina ranks as Brazil’s third-largest trading partner, trailing only China and the United States. In addition to the traditional importation of manufactured products, Argentina boosted the import of commodities such as soy, which surpassed the value of exports of automotive parts and components to the country.

Lia notes that the Argentine crisis is likely to reduce exports from Brazil, affecting the performance of the automobile market, for example.

— Additionally, if Argentina’s soybean supply stabilizes and imports decrease, its contribution to Brazil’s trade surplus will decline.

Complications ahead

According to Haroldo Ferreira, CEO of Abicalçados, the results of the primary elections caught various economic players off guard, and companies in the footwear industry are anxious about the trajectory of the Argentine economy.

Argentina has emerged as the primary destination for Brazilian exports as the US economy slows but still is importing fewer goods than previously. According to the organization’s data, Brazilian footwear exports to Argentina fell 8.3% between January and July this year compared to last year.

— The sector is uneasy. We’ve already experienced a decline (in exports) in the past month, and we expect more complications ahead. As long as the electoral landscape remains uncertain, the impact of the Argentine crisis remains quite sensitive, and there is a low trading bias – Ferreira explains.

The chart below shows Brazil’s steel imports (hs codes 6400-6406) between Jan 2019 and Jun 2023, according to the DataLiner market intelligence service.

Footwear exports to Argentina | Jan 2019 – Jun 2023 | TEU

Source: DataLiner (click here to request a demo)

When asked to comment, the National Association of Automotive Vehicle Manufacturers (Anfavea) stated, “It does not comment on political issues in Brazil or with its trade partners.”

The Brazilian wheat industry, which gets the product from the Argentine market, awaits the election results to evaluate potential repercussions on imports. Rubens Barbosa, CEO of Abitrigo, recalls that wheat production in Argentina halved in 2022 due to the historic drought, impacting the activity of Brazilian mills. Nevertheless, the issue was mitigated by procuring alternative suppliers, including the United States, Russia, Uruguay, and Paraguay.

Other industrial sectors, such as automobiles and white goods, have also been affected by the drop in exports to Argentina, Barbosa recalls.

Source: O Globo

Click on the following link to check the original news report:  https://oglobo.globo.com/economia/noticia/2023/08/15/crise-argentina-ja-reduz-exportacoes-de-produtos-brasileiros-para-o-pais.ghtml

Sharing is caring!