Social and labour market indicators worsen in 2018
Social indicators deteriorated in the second half of 2018, reflecting the strongly detrimental effects of last year's recession, according to data published by Indec, the national statistics institute. Poverty rates climbed up, while indicators of wellbeing worsened. However, labour market indicators suggest that despite economic contraction, destruction of jobs was minimal, which implies that the worsening of consumer conditions stemmed largely from a decline in real wages (amid spiralling inflation).Given that both poverty and unemployment rates are lagging indicators, The Economist Intelligence Unit does not expect major improvement in these data for 2019. Therefore, even though we maintain our view that an economic recovery will materialise in sequential terms and that voters will feel the benefit of the same, risks to this outlook are substantial, with ramifications for the October elections.
The latest Indec data indicate a significant uptick in poverty from 25.7% of the population in the second half of 2017 to 32% of the population in the second half of 2018. Similarly, the proportion of the population living in extreme poverty rose to 6.7%, up from 4.8% in the year earlier. The ongoing economic downturn has clearly had a marked impact on Argentinians' living conditions. The gap between the cost of the basic consumption basket (used to measure the poverty line) and the average income of households below the poverty line is considerable: the former came in at Ps24,357 (US$504), while the latter was only Ps14,872 (US$343).
There is significant variation in the incidence of poverty by geographical location, with the highest poverty rate recorded in Northern provinces such as Corrientes (49.3%), Chaco (41.4%) and Santiago del Estero (38.9%). By contrast, the poverty rate was much lower in cities in the Pampean and the Greater Buenos Aires regions. In fact, in the capital, Buenos Aires, the poverty rate was only 12.6% (although this was still up from 9% in the year-earlier period).
Public concerns rise
Nonetheless, conditions for lower-and middle-income households clearly worsened. According to a report prepared by the Observatorio de la Deuda Social Argentina (ODSA, the Observatory of Argentinian Social Debt), of the Universidad Católica Argentina (the Catholic University of Argentina), the deterioration of social conditions especially affected lower-and middle-income households. The ODSA report highlighted the following findings:
•7.9% of the urban population was affected by severe food insecurity;
•22% of the urban population could not meet its basic health needs;
•27% of the population had housing problems (overcrowded houses, inadequate access to the water and sewage system, and others);
•20% of households faced problems related to pollution; and
•34% of the urban population had inadequate access to the labour market.
Real wages are the key issue
A key driver of the deterioration in human development indicators is a weaker labour market. The latest Indec data show that the labour market has started to slacken somewhat: unemployment rose to 9.1% in the fourth quarter of 2018, up by more than 25% from a 7.2% unemployment rate recorded in the fourth quarter of 2017. However, this figure overstates the job losses that occurred during the quarter. Indeed, the aggregate number of jobs fell by less than 1% in the fourth quarter (while job growth had actually been positive in the preceding three quarters), according to the Ministry of Production.
Instead the poor unemployment numbers appear to largely be a reflection of inadequate job creation at a time when labour force participation is increasing. The spike in the underemployment rate—to 12.1% in the fourth quarter of 2018, up from 10.3% in the year-earlier period—suggests that this is indeed the case. The more pressing concern about the labour market will be regarding real wage growth. According to Indec data, nominal wages in the formal sector rose by an average of 25% during 2018 as a whole. However, consumer prices rose much faster, by an average of 34%, which meant that real wages effectively fell by close to 7% over the year.
Although we continue to expect an economic recovery to set in, in sequential terms, this will be slow to reflect in the unemployment rate, which is a lagging indicator. Meanwhile, inflation is unlikely to fall below the 40% mark until the final quarter of the year, which means that real wages will remain in the red for most of 2019. Importantly, however, despite recent weakness on the economic front, social unrest has been relatively modest. Given the well-established tradition of political protest in Argentina, this suggests a greater degree of forbearance on the part of voters with the reform agenda of the president, Mauricio Macri. Although we recognise that risks to our outlook are high, we continue to expect that improvements in economic conditions, especially towards the end of the year when presidential elections are due, will support Mr Macri's re-election bid