Argentina GDP data gives Macri pre-elections boost

Argentina's economy accelerated in the second quarter, giving President Mauricio Macri some heavy political ammunition ahead of October's mid-term congressional elections.

The country's GDP expanded 2.7% year-on-year in the quarter, up from 0.3% year-on-year in January-March. The economy contracted in 2016.

The IMF expects Argentina to see GDP expand 2.4% this year, up slightly from April's forecast, and expand about 2.25% in 2018.

Business-friendly Macri (pictured), who took office at the end of 2015, is working on a raft of reforms to reintegrate the country into the world, boost productivity and competitiveness, bring down inflation and improve access to credit.

A lot is seen hinging on the mid-term elections, as Macri needs to corral as much political capital as he can get to continue with his reform agenda, which has included unpopular measures such as cutting energy subsidies.

"A vote of support for Macri's party would do much to grant impetus to the numerous reforms he has instated since coming to power and provide momentum for a second run at president," according to BNamericas' August political risk report. Macri can seek reelection in 2019.

Polls show that the legislative elections are not expected to significantly change the balance of power in congress, where no party has a majority.

The government will likely wield the 2.7% GDP growth figure as evidence that reforms are bearing fruit.

A breakdown of Q2 data shows, however, there was a gaping trade gap and that growth in the fixed investment and household spending components was the fastest.

Exports contracted 1.2% year-on-year while imports grew 9.1%. Fixed investment grew 7.7% and household spending 3.8%.

"The boom in investment and consumption is likely to be due to the aggressive loosening of fiscal policy ahead of October's legislative elections. And with high inflation eroding the competitiveness of the peso, strong demand has leaked into imports," research firm Capital Economics said in a report.

Argentina has also flooded the global capital market with bonds - raising billions of dollars in the process.

Local social and economic think tank Ceso, in a September bulletin, questioned the wisdom of the government's policies.

Ceso said: "The policy of unsustainable growth in external debt adopted by the current administration puts off external restrictions for the future, without finding a solution to the root of the economic problems (or even aggravating it).

"To capital flight and an energy and industrial deficit, one must add a record trade deficit that is strengthening as a structural feature of the current economic model. Lifting import barriers in a world where protectionism is growing doesn't seem to be a healthy business strategy. Just consider that North America's answer to our arduous trade talks to sell them US$30mn in lemons was to hinder the sale of US$1.130bn in biodiesel."

The US has decided to impose countervailing duties on imports of Argentine biodiesel, a important export of the South American country.

The OECD has praised Argentina's efforts to overhaul its economy but called on the country to "boost sustainable and inclusive growth."

In a July report, OECD chief of staff Gabriela Ramos said: "Argentina has undertaken a courageous economic turn-about, improving its attractiveness to domestic and international investment. But what matters most will be delivering greater well-being to the Argentine people,"

Reforms to align Argentina with regional peers Chile, Colombia and Mexico would raise per capita incomes by 8.5% over 10 years, the OECD said, citing the results of the first OECD Multi-dimensional Economic Survey of Argentina.

Paris-headquartered OECD has also suggested tax reforms and changes at the central bank.