How will the economy fare in the election? according to an overall indicator of 5 variables

A study on the impact of the economic situation on the results of local national elections so far in the 21st century has analyzed two scenarios for this year and in both cases concluded that it will do so under worse conditions than those in which the ruling party has obtained prevail.

Se trata del “Indicador Global” de la situation económica construido por el Ieral de la Fundación Mediterránea on the basis of 5 “relevant variables”: level of actividad, rate of inflation, dynamic of the empleo privado formal, poder adquisitivo del salario y credito total al private sector. “All these variables play in favor of the general state of the economy in the indicator, with the exception of the evolution of prices (inflation) which affects it negatively”, he explains. Gustav Reyes, author of the report.

The indicator series covers all elections, legislative and presidential, from 2001 and shows the score and odds of the ruling party. And to calculate the indicator at the time of this year’s elections, it assumes two economic scenarios: one built on the basis of the projections of the “Relevamiento de Expectativas de Mercado” (REM) compiled by the Central Bank among professional economic consultants and another based on official budget projections and the government’s agreement with the International Monetary Fund.

In both cases, but worse in the second, the conclusion is that the government would reach the third quarter of the year in a worse economic situation than in any case where the ruling party managed to win presidential or legislative elections.

“Both in the scenario expected by the “market” and in that foreseen by the government in its agreement with the IMF, the general indicator that captures the economic factor before each electoral process shows that the economy would better reach the next elections. than in the years 2001 and 2009 but in a worse state than in all the periods in which the ruling party has been victorious in the past 22 years,” reads a passage from the report.

“In all the years when the ruling party was victorious, the overall indicator of the economic situation shows higher values ​​compared to the years when it was a loser in the elections,” explains Reyes’ work.

The first scenario (the “market” scenario based on the results of the last REM) shows four stagnant variables (inflation, which would remain close to 100% per year, as in 2022, economic activity, real wages and the employment) and a sharp decline in credit to the private sector, due to the policy of monetary sterilization applied by the BCRA, increasingly excluding private credit takers. That is to say an image of stagflation with credit recession.

In this scenario, summarizes the author, the Government would come to the elections:

– Better than in the 2001 and 2009 elections. In both cases, these are legislative elections where the party in power lost; in 2001 the government of Fernando de la Rúa and in 2009 the first government of Cristina Fernandez de Kirchner (CFK). In the first case, there was a very high blank vote, the government could not recover and fell months later. In the second, the panorama was reversed in the following two years and CFK won in the first round of the 2011 presidential elections.

First scenario of stagflation with tightening of credit

– Very similarly to 2013 and 2019, where the ruling party also lost: in 2013, the legislative elections, when the so-called “Front du Renouveau”, led by the current Minister of Economy, Sergio Massaopened from the ruling party and overtook it in the province of Buenos Aires, and in 2019, when the presidential formula Fernández-Fernández de Kirchner, who currently governs, was imposed.

– Worse than in all periods when the ruling party was victorious (2003, 2005, 2007, 2011 and 2017).

Gustavo Reyes also considered the possibility of the scenario expected by the government, according to the official budget and the agreement with the IMF, in which the GDP would increase by 2%, inflation would slow to 60% per year and employment, Wages and Credit to the Private Sector could be expanded, in which case the government would arrive at the polls in better conditions than in the “market” scenario.

In which case, the author notes, the overall indicator of the economic situation would be:

– Better than those of 2001, 2009, 2013 and 2019, all cases where the party in power was losing.

– Very similar to those of 2015 and 2021, where the ruling party also failed.

– And worse than those of the elections in which the ruling party emerged victorious: 2003, 2005, 2007, 2011 and 2017.

In the official scenario, the variables improve slightly, but they are still far from the election years in which the ruling party won

In both scenarios, says the book, all the variables in the indicator converge on the wrong outcome, but those farthest from the average of the years in which the ruling party won are inflation, credit to the sector privacy and activity level. In the official scenario, the variables improve slightly, but they are still far from the election years in which the ruling party won.

Moreover, Reyes concludes, given that the economic policy tools available until the elections are limited and that factors beyond official control such as the weather and the international context “will hardly improve, the ruling party will likely need additional factors to the state of the economy to win in the next election”.

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