Argentina paddling weakly out of the doldrums

Argentina’s economy may have hit rock bottom in April and the second half of the year should be “less bad” than the first, a local consulting firm said.

Data has been improving since April, when the economy contracted 26.0% year-on-year. In May, authorities started easing a national lockdown in most jurisdictions, giving some factories the green light to resume operations. 

Economic activity fell 20.5% in May and 12.3% in June, statistics agency Indec said.

“The second half of the year will be better than the first – or, in reality, ‘less bad’ – but clearly will underperform compared with the second part of 2019,” Ecolatina said in a report.

Despite taking widescale early action to combat the spread of COVID-19, authorities have struggled to contain the spread of the virus in capital Buenos Aires, where strict measures were recently reimposed.

Manufacturing activity in June fell 7.3%, the strongest performance since February. Activity in the extractive industries dropped 15.5%, compared with falls of 20.0% in May and 20.2% in April. The utilities sector saw growth of 3.6%, compared with drops of 5.3% in May and 8.0% in April. 

Ecolatina expects GDP to shrink around 12.5% this year and grow 7% in 2021, led by public sector spending and improving consumption. 

Investment is also expected to recover, but driven by a favorable base effect rather “than a genuine advance.”

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President Alberto Fernández has been wooing investors and outlining public investment initiatives, among them a US$5.9bn infrastructure plan.

This month the government struck a debt restructuring deal with bondholders, giving the country breathing space to regain strength. Authorities are preparing to enter a new round of debt negotiations – this time with the IMF over the US$44bn the country owes the multilateral. Market observers will monitor progress carefully and await details of a post-pandemic economic program. Clarity over the future economic trajectory of the country and its policy stance in areas including mining and energy, as well as spending and capital controls, is key. 

The center-left administration will be looking ahead to next year’s midterm elections, which could be a de facto referendum on the government’s handling of the health crisis and the economy.