Argentina: Economy contracts at fastest pace in two years in Q3
December 22, 2016
Deteriorating conditions among households and worsening investment prompted the economy to record the largest drop in two years in Q3. GDP contracted 3.8% annually, according to preliminary estimates released on 22 December. The print was a notch below the 3.7% contraction in Q2 (previously reported: -3.4% year-on-year) and the 3.7% decline that our panel of analysts had expected.
A fall in real wages and high unemployment continued to dampen private consumption, which contracted 3.1% annually in Q3 (Q2: -2.6% yoy). Despite the government’s efforts to restore business confidence, a sharp drop in investment in capital goods led fixed capital formation to decline at the fastest pace in nearly eight years. Conversely, the decline in investments directed towards construction softened, partially reflecting increasing public works. Unlike private consumption and investment, public expenditure rebounded and expanded 1.9% annually as the government boosted spending to support the economy.
On the external side of the economy, exports fell 2.5% in Q3, following the 1.9% decrease in Q2. Imports contracted 0.8% annually in Q3 after a strong 8.6% expansion in Q2. As a result of the strong fall in imports, the external sector’s contribution to overall growth improved from minus 2.3 percentage points in the second quarter to minus 0.4 percentage points in the third quarter.
On a sequential basis, GDP contracted at the softest pace in one year (Q2: -1.9% quarter-on-quarter: Q3: -0.2% qoq), signaling that the recession is bottoming out. The deceleration in inflation is expected to support real wages in the months to come, while the external sector will benefit from a more benign regional economic environment.