Argentina GDP Q4 2016

Argentina

Argentina: Economy picks up in final quarter of 2016 but weaknesses persist

March 21, 2017

Argentina’s economic performance last year was marked by a downturn in household conditions and worsening investment, as efforts by the Macri administration to tackle problems built up over the previous decade prompted inflation to skyrocket and severely curtailed public spending. GDP plunged 2.3% in 2016, in marked contrast to 2015’s 2.6% expansion. The result matched FocusEconomics analysts’ projection for the year. However, preliminary economic data for Q4 released on 21 March suggest that the worst has been left behind, with the contraction in GDP shrinking from a 3.7% decrease in the third quarter to a 2.1% drop in the last quarter of 2016.

Despite the improving data, the domestic sector is still at a crossroads. Declining real wages and buoyant inflation continued to weigh on Argentinian households in Q4, with private consumption dropping 2.1% (Q3: -2.9% year-on-year). Even though one of the mainstays of Macri’s economic reform plan is to reignite investors’ interest in Argentina, a high interest rate environment persists, hurting investment in the country. After decreasing at the fastest pace in eight years in Q3, the decline in fixed investment moderated in Q4 but shrank a still-sizeable 7.7%, with particularly large drops observed in construction and manufacturing investment. Meanwhile, government consumption plummeted more than expected in Q4. As the government focuses on driving down the country’s fiscal deficit, additional cuts were greenlighted towards the end of the fiscal year. Government consumption swung from a 0.9% increase in Q3 to a 2.0% drop in Q4, the largest decline on record.

With the domestic economy still in the doldrums, it came to the external sector to boost overall growth. Supported by a weaker peso and improving regional trade flows, exports soared in the fourth quarter, growing 7.7% (Q3: -1.8% yoy). Due to a smaller increase in imports, the external sector’s contribution to growth improved from minus 0.2 percentage points in Q3 to plus 0.9 percentage points in Q4, the largest contribution in almost two years.

On a sequential basis, the economy grew 0.5% compared to the previous quarter, the second consecutive quarter of growth (Q3: 0.1% quarter-on-quarter). This puts an end to the technical recession and bodes well for Macri’s approval ratings, which have been dropping in recent weeks on the heels of rampant political turmoil and subdued consumer sentiment. The economy is expected to perform better in upcoming quarters and should return to growth in 2017. The improvement will be driven by fading headwinds in the domestic sector as inflation and unemployment rapidly ease, public spending increases ahead of October’s elections and a more benign environment in regional trade flows.

Our panelists expect the economy to grow 2.9% this year, which is down 0.1 percentage points from last month’s forecast. For 2018, panelists expect the economy to expand 3.1%.


Author:, Economist

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Argentina GDP Q4 2016

Note: Year-on-year changes of GDP in %.
Source: Argentina National Statistical Institute (INDEC) and LatinFocus Consensus Forecast.


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