Argentina: Economic growth gains traction in Q2
September 27, 2017
Positive economic data continue to pile up. According to the Country’s National Statistical Institute (Instituto Nacional de Estadísticas y Censos, INDEC), economic growth in Q2 accelerated from a revised 0.4% annual expansion (previously reported: +0.3% year-on-year) in Q1 to 2.7%. The print, which marks the third consecutive quarterly growth and the fastest expansion in almost two years, came in slightly above FocusEconomics estimate of a 2.7% increase. The acceleration was spearheaded by the domestic economy which is showing clear signs of recovering. On a quarter-on-quarter basis, economic growth came in at 0.7%, below Q1’s 1.2% increase. Overall, Q2’s national account data was greeted favorably by analysts and markets as data continues to confirm that Macri’s turn to economic orthodoxy is bearing fruit. The stream of positive data is boosting confidence and puts the ruling coalition in a strong position to win the runoff vote in the 22 October legislative elections
Growth in the domestic economy was buttressed by a broad-based acceleration in all components of domestic demand, which expanded 4.0% in Q2 (Q1: +1.3% yoy). Private consumption accelerated from a 0.9% increase in Q1 to a 3.8% rise in Q2, the best reading since Q3 2015. Fixed investment expanded a strong 7.7% in Q2, coming in well above Q1’s 3.2% increase. The acceleration in Q2 was driven by an expansion in construction, transport equipment and machinery and equipment and marked the fastest pace of expansion in four years. This attests to the ongoing recovery in the manufacturing and industrial sector. Lastly, growth in government consumption came in at 2.9% (Q1: 1.4% yoy).
Contrasting the domestic economy, performance in the external sector was muted in the second quarter despite a bumper harvest during the agricultural season. Exports logged its second consecutive contraction in the second quarter dragged down in part by depressed overseas demand, particularly from Brazil (Q1: -1.2% yoy; Q2: -1.2% yoy). On the other hand, growth in imports accelerated from a 4.8% increase in the first quarter to a sharp 9.1% rise in the second quarter. The increase largely reflects imports of industrial equipment into the economy. As a result of a decline in exports and an expansion in imports, the external sector made a negative contribution to growth.
The Q2 GDP result marked a rather successful first half of the year for Macri following an extremely challenging 2016. Economic growth in H1 recorded a cumulative expansion of 1.6% and the positive momentum is expected to carry over into H2, as the latest real sector data suggests. In its 2018 budget bill, the government estimates economic growth to reach 3.0% for 2017 and 3.5% for 2018. 2017’s figure is below the 3.5% expansion outlined in last year’s budget but above FocusEconomic’s forecast of a 2.6% expansion. Nevertheless, the expansions expected this year and next would mark the first two consecutive years of growth since 2011 and underscore the positive impact Macri’s liberal policies are having on the economy after having inherited a country plagued by economic imbalances.