Argentina GDP Q2 2016


Economic recession deepens in Argentina in Q2

Following a period of data scarcity after President Mauricio Macri’s administration declared a “national statistical emergency” in December, the National Statistical Institute (INDEC) has recently started publishing official GDP data with information on both the supply and demand sides of the economy. The overhaul of INDEC represents an important step towards the normalization of the country’s statistics as well as the improvement of investor confidence.

According to official data released on 23 September, in the second quarter, the Argentine economy contracted 3.4% over the same quarter of the previous year, which contrasted the revised 0.4% expansion seen in the first quarter (previously estimated: +0.5% year-on-year). The contraction was steeper than the 2.8% decrease expected by the markets. Q2’s figure marked the steepest decline in nearly two years and was due to a deterioration in both the domestic and external sectors of the economy. On a sequential basis, in the second quarter, the economy contracted 2.1% over the previous quarter, which followed the 0.5% decrease observed in Q1 and marked the third quarter-on-quarter contraction.

On the demand side of the economy, in Q2, private consumption contracted 0.1% on an annual basis, which contrasted the 1.6% increase in Q1. A deterioration in real wages and worsening conditions in the labor market hurt private consumption in the second quarter. Moreover, government consumption swung from a 2.6% increase in Q1 to a 2.0% decrease in Q2, which marked a multi-year low. In addition, fixed investment also disappointed in Q2 and contracted 4.9%. The figure was down from the 3.3% decrease seen in Q1. On the external side of the economy, exports plummeted 1.9% in Q2, thus contrasting the 12.8% increase seen in Q1. Growth in imports decelerated from 12.6% in the first quarter to 8.7% in the second quarter. As a result, the external sector’s contribution to overall growth deteriorated from minus 0.8 percentage points in the first quarter to minus 2.3 percentage points in the second quarter.

On the supply side, the contraction in Q2 was due to deteriorating conditions in both primary and secondary sectors of the economy due to subdued domestic and external demand, in particular from Brazil. However, the liberalization of the exchange market and the gradual recovery in commodity prices will bode well for the economy going forward. The agricultural sector contracted 8.1%, which was down from the 6.0% decrease observed in the previous quarter. Moreover, the contraction in industry intensified from 2.0% in Q1 to 6.7% in Q2. One of the few sectors that recorded an improvement in Q2 was the electricity, gas and water sector which expanded 4.1%, thus improving over the 1.2% increase seen in the previous quarter.

Our panelists expect the economy to contract 1.3% this year, which is down 0.1 percentage points from last month’s forecast. For 2017, panelists expect the economy to accelerate significantly and expand 3.0%.

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Argentina GDP Chart

Argentina GDP Q1 2016

Note: Year-on-year changes of GDP in %.
Source: Argentina National Statistical Institute (INDEC) and LatinFocus Consensus Forecast.

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