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Argentina’s Economy Shrank by 4.2 Percent in Second Quarter of 2018

It is the steepest drop in four years, and the entire Macri administration.

By | [email protected] | September 20, 2018 12:24pm

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The Argentine economy shrank by 4.2 percent in the second quarter of 2018 when compared to the same period of last year, according to a report released by the Indec statistics agency on Wednesday. The report further confirms that Argentina is immersed in a recession, as the figure is the steepest in the last four years, and in the entire Macri administration.

So far this year, the economy has shrank by 0.5 percent, thus reversing the 3.6 percent growth experienced in the first quarter of the year. The curve began its descent in April with a 0.6 percent decrease and entered its current collapse in May, when the fateful combination of the first stage of the run on the peso and the meager harvest that affected the farming sector – a result of a long drought – produced its first effects. The economy shrank by 5.2 percent that month and by 6.7 percent in June. The average between these three numbers results in this report’s 4.2 percent.

The negative effects of the two mentioned factors largely impacted the GDP’s figures. According to the report, the farming sector’s output shrank by a staggering 31.6 percent when compared to the same period of last year. The industrial and retail sectors, in contrast, decreased by 1.8 and 1.6 percent, respectively. Nonetheless, these sectors’ activity levels have also been generally negative since during the past years – with the exception of the period of generalized growth that took place between mid-2017 and the first quarter of 2018.

Most other sectors of the economy – with fishing, hotels and restaurants, and transport and communications at the top – also had negative quarters.

The only sector that experienced substantial growth – as a result of the increased activity, consequence of the run on the peso – was financial intermediation, with 8.7 percent inter-annual. The construction sector also grew by 5.5 percent.

The government estimates the GDP will shrink by 2.4 percent overall this year. In its 2019 budget bill, it argued the drop will largely be a result of external factors such as: the trade dispute between the US and China, the contagion effect of the confidence crisis Turkey went through – presenting itself as a victim, rather than a cause of the turmoil in emerging markets – the political and consequently economic uncertainty in Brazil ahead of its elections next month, and the political earthquake caused by the “notebooks scandal,” which according to the government resulted in an obstacle to the financing of infrastructure projects, as the largest companies in the country that would undertake them were reached by the wide-ranging corruption scandal.

The same bill estimates the economy will shrink by 0.5 percent in 2019, with the larger drops taking place in the first months of the year, a result of the recession the country will continue going through.