Argentina's trade balance with Brazil yielded positive results for the second straight month in October 2021. However, numbers for the first 10 months of the year are still in the red.
After eight months of deficit, positive outcomes in two months were still insufficient for Argentina to surmount the trade deficit with the neighbour and Mercosur partner, which stands currently at US $ 510 million, according to data from Brazil's Special Secretariat for Foreign Trade and International Affairs (SECINT).
Nevertheless, Argentine exports have reached a record in seven years, after October's US $ 92 million surpluses. Exports to Brazil registered a year-on-year growth of 50.7% to total about US $ 1.218 million, the highest amount since September 2014, driven by sales of vehicles, wheat and corn.
On the other hand, imports climbed 37.6% annually, boosted by purchases of iron and steel.
Thus, the volume of trade between the two countries reached US $ 2,344 million, the highest in more than three years.
A report by the consulting firm Abeceb explained that Argentina's restrictions on car imports and Brazil's difficulties in exporting due to the lack of supply of semiconductor chips, led to these results, in addition to the crisis for hydroelectric generation in Brazil due to the drought, which favoured Argentine exports.
The accumulated commercial exchange so far in 2021 was 11.4% above that of the same period of 2019, which shows a recovery from pre-pandemic times.
For Argentina, the first 10 months of 2021 showed a 45.4% YoY increase in exports and a 46.3% YoY increase in imports. Hence the deficit.
”Historically, it has been seen that recoveries in trade are accompanied by a greater red in the foreign exchange balance for Argentina, given that the trade balance with Brazil has been in deficit since 2004 (except in 2019) due to the wide industrial asymmetries,” Abeceb's report explained.
“This fact is relevant considering that we expect the domestic economy to grow faster than the Brazilian in 2021 (+ 7.9% vs + 4.9% annually) and 2022 (+ 2% vs + 1.2%), it went on.
The consulting firm also foresees that in the short term trade will continue to increase hand in hand with the exit from the pandemic but some uncertainty still lingers for 2022.
Brazil is going through successive cuts in the economic expansion projections and the erosion in consumer and industrial confidence, in addition to a more contractionary monetary policy amid growing inflation, plus uncertainty stemming from the presidential elections.
Abeceb also highlighted Argentina's restrictions on currency exchange, which could affect trade as a devaluation of the peso is highly anticipated.
Additionally, normalization of the difficulties faced by global supply chains will take time to come, so it is expected that a certain shortage of key inputs (such as chips) will continue, preventing a smooth operation of manufacturing activity, and with it, Finally, although the outlook improved in September and October, the historical downspout of the Paraná River will continue to be a factor to monitor since the prospect of drought for the coming months suggests that it could continue to hinder the normal trade flow between the two countries,” the report added.