Wages and consumer confidence improve, but is it too late?

Javier Milei's administration is attempting to reassure investors amidst growing fears of an impending economic recession. Two recent indicators have provided a glimmer of optimism. First, the Consumer Confidence Index (ICC), compiled by Torcuato Di Tella University, increased by 0.8% in October compared to the previous month, after a 2.4% rise in September.

The majority of this improvement was attributed to Buenos Aires, where the index jumped by 6.8%, effectively reversing a similar decline in the prior month. Historically, the ICC has served as a reliable gauge for the Government Confidence Index (ICG), which is set to be released later. However, analysts at Portfolio Personal Inversiones (PPI) suggest that this correlation may have weakened in recent months.

While the ICC and the ICG typically move together, their relationship has recently become decoupled. For instance, in September, consumer confidence surged by 2.4%, while confidence in the government dropped by 6%. Conversely, in July, the ICC fell by 1.1%, and the ICG rose by 6.4%. The other encouraging sign for the government came from wage data released by the INDEC agency.

Real wages in the registered sector grew by 2.6% in August, with inflation-adjusted growth of about 0.9%. If this trend persists, it could bolster consumer spending and benefit the retail and services sectors. Nevertheless, Cohen Aliados Financieros warns that the recovery may not be timely enough. With presidential elections just a year away, a faltering economy could negatively impact public sentiment and increase Argentina's risk premium.

Indeed, Argentina's country risk index rose to 710 basis points in October, up 17% from the July low of 400 points. Economist Gustavo Ber notes that political signals are currently garnering more market attention as investors display less sensitivity to economic data. Milei has acknowledged that Argentina's indicators are not as favorable as they once were, but he claims his administration has brought about the "best change" in history, particularly in poverty, inflation, and public safety.