Argentina: Economy grows at softest pace since Q1 2021 in the fourth quarter
GDP growth fell to 1.9% year on year in the fourth quarter from 5.9% in the third quarter. Q4’s reading marked the worst since Q1 2021.
The downturn was broad-based, with private consumption, public spending and fixed investment all weakening. Household spending growth moderated to 5.1% in Q4 (Q3: +10.5% yoy), as consumer spending was battered by downbeat sentiment, spiraling inflation and a falling peso. Public spending dropped at the sharpest pace since Q2 2020, contracting 2.2% (Q3: +0.2% yoy). Fixed investment growth slid to 0.1% in Q4 from 14.7% in the prior quarter amid an uncertain economic environment.
On the external front, exports of goods and services rose 8.6% in Q4 (Q3: -2.5% yoy). Meanwhile, imports of goods and services growth slowed to 1.0% in Q4 (Q3: +20.9% yoy).
On a seasonally adjusted quarter-on-quarter basis, the economy shrank 1.5% in Q4, swinging from the previous quarter’s 1.4% expansion. Q4’s reading marked the worst print since Q2 2020.
Moving to the current quarter, available figures suggest that the economy remains in the doldrums. Inflation climbed further in January and February, while consumer sentiment remained deeply downbeat, and the peso kept weakening in the same two months. Meanwhile, a historic drought, coupled with frosts, is hitting soybean and corn harvests, leading the government to start talks with the IMF to ease FX reserve targets for this year. Moreover, due to cases of bird flu, the government suspended poultry exports in late February.
Commenting on the outlook, analysts at JPMorgan stated:
“A deeper contraction is to exacerbate the already challenging fiscal consolidation effort and is to have a marked impact on the external accounts. Moreover, the negative supply shock stemming from the drought impact on crop production, given the prevailing imbalances, will also exacerbate inflationary tensions ahead, [adding] upside risk to the current forecast for 115% by year-end.”