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Argentina GDP Q1 2023

Argentina: Economy cools less than expected in the first quarter

The economy grew 1.3% year on year in Q1, following the previous quarter’s 1.5% expansion. Q1’s reading came in above market expectations.

The deceleration came on the back of downturns in fixed investment and exports. Fixed investment shrank 0.6% in Q1, following the prior quarter’s flat reading, weighed down by an uncertain economic environment, macroeconomic imbalances, rising interest rates and import restrictions. Meanwhile, household spending growth came in at 6.0% in Q1 (Q4: +5.9% yoy), as runaway inflation and expectations of a further intensification of price pressures amid a falling peso stimulated the propensity of consumers to spend a depreciating currency. Lastly, public spending increased by 1.6%, after contracting 2.3% in Q4.

On the external front, exports of goods and services tanked 6.0% in Q1 (Q4: +8.4% yoy) amid a historic drought and FX restrictions. Meanwhile, imports of goods and services growth came in at 2.9% in Q1 (Q4: +0.6% yoy).

Meanwhile, GDP expanded 0.7% on a seasonally adjusted quarter-on-quarter basis in the first quarter, rebounding from the 1.7% contraction recorded in the fourth quarter of last year.

Moving to the current quarter, available figures suggest that the economy is set to weaken. Higher inflation in April-May and three additional rate hikes on top of a tumbling peso paint a bleak picture. Moreover, the country’s currency reserves continued to fall in May due to protracted drought undermining agricultural exports and FX-market interventions.

For 2023 as a whole, Argentina will be the region’s laggard. The economy will shrink, buffeted by sky-high inflation, surging interest rates, a plummeting peso and depleted savings. Global headwinds and domestic drought will further complicate things. Uncertainty arising from October’s general election and an extremely high debt-default risk cloud the outlook further.

Commenting on the outlook, Diego W. Pereira and Lucila Barbeito, analysts at JPM, stated:

“For the second half of the year, GDP is expected to gain in the third quarter as agricultural production recovers from the dry spell. But the last quarter of the year is expected to see another deep contraction as the economy starts to process a belated and, therefore, costly adjustment.”

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