Argentina: Economy contracts again in Q4 2019
March 26, 2020
Economic activity in the fourth quarter fell 1.1% year-on-year, following Q3’s sharper 1.8% slump, according to the Statistical Institute (INDEC). Another sizable contraction in domestic demand was behind the economy’s gloomy performance, weighed on by sky-high interest rates, downbeat investors’ confidence and runaway inflation. On a quarter-on-quarter seasonally-adjusted basis, the economy contracted 1.0% in Q4, contrasting the 1.0% increase observed in Q3. Taking the year as a whole, the economy contracted 2.2% in 2019, after shrinking 2.5% in 2018.
Domestic demand again sank 5.2% in annual terms in Q4 (Q3: -8.3% year-on-year), with private consumption dropping 1.9% (Q3: -4.7% yoy) amid an ailing labor market, abysmal consumer confidence and elevated inflation. Meanwhile, fixed investment plunged 9.0% (Q3: -10.1% yoy), led by a significant contraction in investment in construction and machinery equipment, and government consumption fell 3.1% in Q4 (Q3: -0.4% yoy), reflecting the government’s intensified efforts to cut spending to meet fiscal targets as agreed with the IMF.
While the external sector continued to support growth, a smaller increase in exports and a less pronounced contraction in imports limited the contribution. Imports fell 10.1% in Q4 (Q3: -15.1% yoy), again reflecting plummeting domestic demand. Exports, meanwhile, rose 7.4% in Q4 (Q3: +13.8% yoy), supported by rising agricultural production in the quarter.
In 2020, the economy looks set to remain stuck in recession. An unfavorable investment environment, high inflation and policy uncertainty will depress domestic demand, while the new levies will weigh on export growth. Interventionist policies, spillovers from Covid-19 and tough debt renegotiations ahead further cloud the outlook.