Argentina recession may have bottomed out

Argentina’s economy remained in intensive care in the first quarter of the year – but some analysts believe the recession may have bottomed out.

GDP fell 5.8% year-on-year in the three months, the fourth quarterly contraction in a row, statistics agency Indec said.

Argentina has been struggling since around the middle of last year, amid a drought, capital outflows and economic imbalances.

But quarter-on-quarter data shows that the pace of economic contraction slowed in January-March to 0.2%, smaller than the fall of 1.3% recorded in 4Q18.

“After the economy hit bottom in the first quarter of 2019, we expect a recovery to start,” local consultancy Ecolatina said in a research report.

Ecolatina cited the positive fallout from a record harvest in Q2, stability on the all-important forex front and government-driven credit schemes to boost consumption such as Créditos Anses and Ahora 12.

Jobs data, however, showed that unemployment rose to 10.1% in Q1 from 9.1% in Q4. 

Improvements in macroeconomic data will nevertheless bring some cheer to embattled President Mauricio Macri ahead of October’s elections. But voters will want to feel tangible benefits of any recovery.

Capital Economics said in a report: “Argentina’s recession eased in Q1 and our GDP Tracker suggests that the economy returned to positive growth in Q2, but the recovery will be weak and the unemployment rate looks set to rise further. President Macri still faces an uphill struggle to be re-elected in October."

Any recovery is forecast to be tepid as the government tightens its purse strings to meet austerity drive targets. With limited public spending, a recovery is expected to be private sector led.

Authorities are seeking a 1% primary fiscal surplus in 2020. Inflation cooled in May. 

Picture credit: Juan Mabromata/AFP