Losses caused by a fall in the terms of trade reached US$757 million in July

Libertad y Progreso

Lower international liquidity is felt in Argentina and the outlook for the future is complex.

In July, losses caused by a drop in the terms of trade were US$757 million, the largest in the entire Fernández Administration. If the prices of July 2021 had prevailed, the trade balance would have shown a surplus of US$425 million instead of the registered deficit of US$437 million.

This is the third consecutive month in which the Argentine Commercial Exchange registers a loss due to worsening in the terms of trade. Previously, 18 consecutive months of gains had been recorded.

The gain/loss by terms of trade is an indicator of how the purchasing power of exports changes in terms of imports because of changes in international prices. That is, losses due to terms of trade show that exports buy less imports, putting pressure on the need for foreign currency and the balance of the trade balance.

Economists point out that, had the prices of July 2021 prevailed, the trade balance would have shown a surplus of US$425 million instead of the US$437 million deficit recorded. Export prices registered their third consecutive month of slowdown in year-on-year variation, while import prices continued to rise. In particular, the situation of imports of Fuels (energy) should be highlighted, which increased 50.8% year-on-year in quantities with prices 111.3% higher than in July 2021.

Eugenio Marí, Chief Economist of the Fundación Libertad y Progreso, explains that “since the fourth quarter of 2020, Argentina has been taking advantage of a strong rise in the terms of trade, which facilitated the accelerated recovery of economic activity. But in the last three months that trend was reversed by lower international liquidity. In other words, the tailwind we’re experiencing is starting to turn.”

In addition, Marí added “to the international situation we have to add that along the way we are wasting opportunities. For example, the delay in the construction of fundamental infrastructure for the development of Vaca Muerta, added to the instability in the rules of the game, means that we now have to import energy despite having one of the most important shale gas reserves in the world.”

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