June economic activity data another blow for embattled Macri

Economic activity in Argentina flatlined in June after expanding 2.4% in May, as economic storm clouds once again gather over the country.

Activity grew 0.0% year-on-year in the month, but contracted 0.4% in seasonally adjusted terms, according to data from statistics agency Indec.

In June the economy was propped up by the farming sector, where activity surged 43.7% year-on-year. The extractive industries and transport segments eked out sub 2.0% growth, but activity in the financial intermediation sector fell 15.1%.

Over the first half of the year, overall activity declined 2.6%.

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The June reading, although technically not a contraction, will offer little comfort for embattled business-friendly President Mauricio Macri, who is expected to lose October's presidential elections after being pummeled in the recent primaries, which sparked turmoil in the local markets.

Some forecasters project the fallout from the shock election result will deepen the economic contraction expected this year.

Following the primary elections, won by Peronist Alberto Fernández and his populist running mate Cristina Fernández-Kirchner, the peso plunged and interest rates – already high and weighing on investment – rose.

Rating agency Fitch forecasts a contraction of 2.5% for this year, down from a prior estimate of negative 1.7%. Fitch says growth could reach 0% in 2020, citing a “high degree of uncertainty given lack of clarity around key economic policies post-election.” 

Macri, pictured, had been working to put the fragile economy on a more stable footing and in the months before the primaries some analysts said the economy had hit bottom. Argentina was knocked into an economic tailspin in 2Q18 by a perfect storm of factors, including a drought and capital outflows. 

Alberto Fernández, meanwhile, has tried to allay investor fears as the focus shifts to what he may do on the policy front if he succeeds in October.  

“I'm not an economic dogmatist,” Fernández said earlier in the week. “I’m not a Keynesian or a liberal. I'm an economic pragmatist. There are times at which the economy can be fixed by Keynesian measures and moments in which more freedom is the solution.”

Whoever wins will inherit a weak economy and a large federal government debt pile, the bulk of which is denominated in dollars. British research firm Capital Economics said a sovereign debt default is "now more likely than not."