JULIO FRESNO APARICIO
Julio Fresno Aparicio
After twelve years, the Kirchner family departed from Government in Argentina after losing the National Elections last December to the opposition, led by Mauricio Macri. The win was not straightforward: a second ballot was required. The close-run result will create challenges for the new Government as they strive to bring about changes in politics.
The possibility of change brought a positive trend in the General Expectations Index about the Economy* right after the election. This was supported by a more optimistic view amongst consumers who had new hope for a better future.
But the ‘future’ did not arrive fast enough to allay the anxiety of the population, and public opinion metrics dropped slightly during the first term. This was also reflected in consumers’ purchasing behavior. Not a major surprise: facing a hard first term to create an easier path for the second part of the year was the promise from the new Government.
The changes in politics have concentrated on recovering the confidence of the capital markets in order to gather foreign investments, with the primary goal of solving the problem of how to unify and liberalize the exchange market. There are other aspects yet to be resolved: lower inflation and the fiscal deficit, together with a demand for transparency in the public indexes (poverty, inflation being key examples). However, the first macroeconomic actions that have been taken have helped Argentina to gain a better positioning in international indexes – Moody´s, Finch and S&P – from CAA1 to B3, an acceptable stability according to specialists. By removing export taxes and duties on agricultural, the Central Bank increased the level of reserves which gave a positive signal to investors.
The economic environment showed that the IGA (General Index for Economic Activity) dropped significantly during the first term. However, once discussions about increases in public services had finished – almost simultaneously with the Mini-Davos Forum in Argentina – the IPC (Consumer Confidence Index) reversed the negative trend and also the Purchase
Expectations from IGEE (source Kantar TNS). Moreover, there is also a synchronicity between this TNS Economic Expectations Index and the one from CEO´s (the latter gathered during IDEA forum). But challenges still exist. Companies need to deal with inflation and restrictions in consumption; creativity will be required to find ways to grow by reinforcing demand. In the consumer goods sector, promotions and discounts and the continuation of “Ahora 12” (a government plan for purchases paid in monthly installments) are key drivers of demand. This affects profitability levels which companies then need to compensate for through incremental increases in sales and increased internal efficiencies.
We predict that growth will be slow for the rest of the year, and will remain so in 2017, with consumers continuing the trend of making more shopping trips but with lower spending on each trip (careful consumers, searching for options). ‘Discount’ retailers, the variety of brands – including white labels – and loyalty programs are all key to local consumption patterns and habits, irrespective of social class.
Another important consideration is digital: Argentina leads internet penetration in Latin America. Digital has become one of the most relevant touchpoints in the path to purchase – even for showrooming – with incremental business through e-commerce platforms building since 2013 and little rejection of cyberselling**. In this arena, both sides – supply and demand – are experiencing a positive learning curve after three years of continuous Cyber-days and specific retailer activities.
In conclusion, potential foreign (and local) investment – mostly in energy, communications and infrastructure – are expected to recover growth in 2017. These will help support the new patterns of consumption: stronger broadband to support e-commerce, collaboration on energy efficiencies, infrastructure for roads and transportation to reduce logistic costs, combined with liquidity in the financial sector to help promote consumption through credit. We anticipate that the Argentine consumers’ behavior will remain pragmatic, but optimistic.
* IGEE – General Economy Expectations Index from Kantar TNS Argentina
**Kantar TNS Connected Life