Exports to Argentina fall almost 30% amid weak demand

Economists say most of the drop in exports to Argentina reflects the effects of the price shock carried out by President Javier Milei and expect the low demand for Brazilian goods to start to recover only at the end of the year. A reorganization of the Argentine economy is underway, with declining demand and persistently high inflation, which leads to lower consumption and fewer imports. Furthermore, the Argentine economy had been losing strength even before Mr. Milei took office on December 10, 2023.

Brazilian imports from Argentina are also down, from $1.77 billion in the first two months of 2023 to $1.51 billion this year. The trade balance for Brazil also fell during this period—to $192 million in 2024, from $604 million in 2023.

December and January were unusual for bilateral trade, with a surplus for Argentina for two consecutive months. Nonetheless, the positive balance is not good news for Argentina—which has been purchasing less from abroad—and much less for Brazil.

The December trade balance shows that the Argentine economy was already weak before Mr. Milei took office. In November 2023, economic activity measured by EMAE, an indicator by the National Institute of Statistics and Censuses of Argentina (INDEC), fell 1.4% compared to October, seasonally adjusted.

In February, the bilateral balance returned to a surplus for Brazil and offset the January deficit, with a positive balance in the first two months of 2024. Some data, however, point to a deterioration in the commercial relationship.

The chart below compares container exports from Brazil to Argentina to imports in the Spanish-speaking country between Jan 2022 and Jan 2024. The data is from DataLiner.

Container Exports and Imports | Argentina x Brazil | Jan 2022 – Jan 2024 | TEUs

Source: DataLiner (click here to request a demo)

According to ICOMEX, the drop in the value exported to Argentina in the first two months of the year was driven by a reduction in quantity. The drop was led by intermediate goods (inputs and raw materials), which fell 34.2% compared to the same months in 2023. Consumer durable goods, a category that includes vehicles, shrank 20.8%. Average prices for total exports rose 2.2%. In Brazilian imports of Argentine products, there was an average price reduction of 5.1%, but quantities fell even more, by 9.7%.

“Argentina is undergoing a readjustment of its macroeconomy. We started a change process in which there is a drop in demand, a persistent but decreasing inflationary process, and a drop in consumption, which translates into fewer imports,” said Fernando Furci, general manager of the Chamber of Importers of the Argentine Republic (CIRA). “This process should last from six months to a year and will have an impact on all types of imports by Argentina.”

CIRA believes imports made by Argentina likely fell to $73.7 billion in 2023 and should shrink to $66.8 billion this year, from $81.5 billion in 2022. This year, the Argentine government eliminated administrative restrictions on imports, including quotas and partial bans, but maintained some specific taxation on international trade, as shown in a recent CIRA report.

The report says that, while Argentine exports tend to grow quickly this year with the recovery of the soybean harvest, imports will have a gradual recovery, following changes implemented in December to the system of prior import permits, in addition to the regularization of the exchange rate. “Trade has started on a path of deregulation and facilitation that allows companies to have greater predictability and be more cost-efficient. But it is a long process of streamlining procedures and eliminating unwritten rules,” he said. Mr. Furci emphasizes the importance of importing at reasonable costs, since 80% of what Argentina buys from other countries goes to its industry and production, and not to the end consumer.

Data from Argentina’s INDEC show industrial production is down amid the contraction in demand. In January, Argentina’s industrial manufacturing production index (IPI) fell 12.4%, compared to January 2023. Some highlights are the 33.5% drop in machinery and equipment and 12.4% in motor vehicles, car bodies, and auto parts. The production decrease was widespread in January, affecting 14 of the 16 industrial activities monitored by INDEC.

The current shrinking Argentine economy is leading banks to lower projections for Argentina’s domestic demand, said Bráulio Borges, a researcher at Ibre/FGV and a consultant at LCA. The behavior of domestic demand, more than that of GDP as a whole, reflects how much Argentines are expected to consume and invest within the country and how much they will import Brazilian goods, Mr. Borges points out.

Data on the components of Argentina’s GDP in 2023 have not yet been released, but consultancy FocusEconomics estimates that private consumption likely grew 0.9% last year and should decline 4.8% this year. Investment measured by gross fixed capital formation (GFCF) likely shrunk by 1.2% last year and should fall by a further 5.7% in 2024.

“There has been a chronically bad situation for around 20 years in Argentina, but the consensus data and cyclical indicators we are starting to see show a deterioration in monthly readings. That points to a relevant impact on our economy,” said Mr. Borges of Ibre/FGV.

The Argentine Central Bank’s Market Expectations Survey (REM) projects a 1.4% drop in GDP for 2023, followed by a 3.5% decrease this year.

The data were released in March and based on medians of market projections carried out in February, which have been falling.

Imports, for instance, are now expected to decrease to $66.8 billion this year, $90 million less than in the previous month’s consultation.

José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB), says that his preliminary estimate is a 35% drop in Brazilian exports to Argentina this year, to $11 billion.

He also expects a 13% drop in imports, to $10.5 billion. The Brazilian surplus in bilateral relations is expected to fall to $500 million this year, from $4.7 billion last year.

The estimated drop in shipments this year is mostly explained by the basis of comparison for 2023, when Brazil sold soybeans to Argentina given the crop failure in the neighboring country. According to SECEX, soy was the most shipped Brazilian product to Argentina in 2023, reaching $2 billion, just above the $1.93 billion in auto parts and accessories. Vehicle imports reached $1.4 billion. Excluding soybeans, Brazil’s sales to Argentines in 2023 totaled $14.68 billion, 3.2% less than in 2022. Data from the first two months already show part of the soy effect. The grain shipments to the neighboring country fell from $124.6 million in the first two months of 2023 to $4.23 million in the same months of this year.

Exports of soybeans and electricity put Brazil back in the position of Argentina’s main external supplier in 2023, which the country had lost in 2021 to China, according to INDEC data. This year, however, there are no expectations of a crop failure in Argentina’s soybeans, and the neighboring country’s demand for Brazilian manufactured goods should fall, said Mr. Castro.

“Imports are falling and will fall because the Milei administration’s economic policies have led to a contraction in activity,” said Natacha Izquierdo, an economist at Buenos Aires-based consultancy Abeceb. She notes that data from the first two months shows a trend of fewer imports in the coming months. With fewer imports, Argentina should see a trade surplus or, at least, a much smaller deficit than usual.

Amid the contraction in domestic demand, Abeceb expects household consumption to fall 30% this year in Argentina, driven by a real drop in wages of 6% to 8%. “As a result, we should see a GDP drop of 4.7% this year. The slowdown will not be greater thanks to agribusiness. Without that, we could see a 7% decrease in the Argentine economy this year.” Ms. Izquierdo expects activity to begin to recover in the second half of the year, especially in the last quarter. For 2025, she projects an economic growth between 5% and 5.5%, partly explained by the low basis of comparison.

“The adjustment of relative prices in Argentina has led to a deep slowdown in demand, and the country is becoming poorer. Commercial exchanges will decrease,” said Livio Ribeiro, an economist at BRCG and researcher at Ibre/FGV, who estimates a drop in imports due to weak demand, and some shielding of Argentine exports. For Mr. Ribeiro, with the ongoing adjustment, the Argentine economy will shrink to the size it had before. “Now it is the moment when the boat hit the iceberg. The iceberg was already inside the boat, but no one had noticed,” he said. “The result will be a weaker economy after a brutal short-term shock. It’s like a shock therapy that burns the patient. It is hard to tell whether this is the most appropriate strategy and whether the patient will survive.”

Source: Valor International; translation by Liliana Hage

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