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July 12, 2021

The Week at a Glance

Argentina: Mercosur, in intensive care

BY Alejandro Giacoia, Andrés Borenstein, Miguel A. Kiguel, Lorena Giorgio, Isaías Marini

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Uruguay has officially said it would seek unilateral trade agreements with other parties. It was a low-risk bet considering how things had been going in Mercosur. It is an open secret that the Uruguayans wanted to have a free trade agreement or some variant of it with China and other powers so as not to be “locked in” between Argentina and Brazil. It sounds logical that a small and open economy wants to trade with the whole world and not remain tied to Mercosur.


The fiscal and monetary dynamics will reverse, will the FX hold?

In the first semester, fiscal convergence was greater than expected and, therefore, the need to monetize the deficit was less. This, together with the greater availability of dollars because of an increase in international prices, eased the FX market pressure. Manna from heaven. The only monetary pressure in the first six months of the year came from the side of the central bank interventions in the FX market, buying dollars that reinforced the international reserves. I mean, a good problem to have.


Activity, wages and employment: what happened and what is coming

The INDEC published last week the Industry and Construction data, confirming what we had been anticipating for a month: the economy suffered a severe blow due to the second wave of infections during May. Indeed, the Industry recorded a 5% monthly drop without seasonality, the strongest since March 2019 if we exclude the hardest months of quarantine (March and April). For its part, the Construction sector fell 3%, the fourth consecutive decline. But the first data that came out for June indicate that the setback was temporary and some of the lost ground has already been recovered. Meanwhile, the wage and employment numbers, although very depressed, continue to show improvement. What can we expect in the months before the elections?


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