By Charles Newbery
BUENOS AIRES
Argentina’s industry is showing signs of slowing as high inflation reduces consumer demand and raises concerns of increased unemployment.
“It is very hard for an economy to function with 30 percent annual inflation,” Hector Mendez, head of the Argentine Industrial Union, said Tuesday on Radio El Mundo.
He said that with inflation running so high people were cutting back on what they spent, and this was reducing sales and production.
“The lack of consumption is very hard to replace,” Mendez said. “Inflation always eats up everything, even the improvisation of executives.”
Many economists warn that Latin America’s third-largest economy is poised to contract this year after a decade of robust growth. A major problem is inflation, which has been running far above international levels since 2005. In 2014, the annual inflation quickened pace to 30 percent after hovering at 25 percent since 2010.
This has depressed investment in the country and led companies to start laying off workers.
New car sales dropped 39 percent to 55,931 vehicles in May compared with 92,387 vehicles in May 2013, according to the Argentine Association of Automotive Dealers, an industry group.
The decline has raised concerns about the health of the economy, with many economists saying it will contract by about 2 percent this year after growing by 8 percent annual between 2003 and 2011 and less than 4 percent annual in 2012 and 2013.
The automotive and construction sectors were the motor of economic boom and helped to sustain growth between 2012 and 2013 even as most industries slowed.
Mendez said that this year the decline in sales was widespread across industry, led by autos as well as the food, metallurgical and textile industries.
“Employment is in jeopardy, especially in the automotive sector, which is the hardest hit,” Mendez said.
He called on the government to take steps to reinvigorate sales and keep the unemployment from rising. The jobless rate rose to 7.1 percent in the first quarter of this year after hitting a more than 10-year low of 6.4 percent in the fourth quarter of 2013.
A main complaint of the industrial sector is a 30 to 50 percent tax on luxury goods like mid- and high-end cars that the government introduced in January to help reduce a three-year decline in foreign currency reserves.
Jorge Capitanich, the presidential chief of staff, responded to the complaints Tuesday, saying that the government is in talks with Brazil on boosting automotive exports to that country, the biggest buyer of Argentine-made cars and parts.
The deal would also offer incentives to buy cars on both sides of the border, he said.
“We expect to have news next week,” Capitanich said.
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