Argentina: Economy plunges at unprecedented pace in Q2 amid strict lockdown
September 23, 2020
Economic activity in the second quarter nosedived 19.1% year-on-year, following the first quarter’s softer 5.2% slump, according to the Statistical Institute (INDEC). On a quarter-on-quarter seasonally-adjusted basis, the economy tumbled 16.2% in Q2, down from the 4.2% fall observed in Q1.
A much sharper contraction in domestic demand was behind the economy’s dire annual reading (Q2: -23.1% yoy; Q1: -8.2% yoy), prompted by lockdown measures to stop the spread of the pandemic, sour investor and consumer confidence, elevated inflation and sky-high interest rates. Private consumption tumbled 22.3% (Q1: -6.3% yoy) amid an ailing labor market and elevated economic uncertainty. Moreover, fixed investment collapsed 38.4% (Q1: -18.3% yoy), due to business closures and a significant contraction in investment in construction and machinery equipment, while government consumption contracted 10.1% in Q2 (Q1 -0.6% yoy).
The external sector was also battered by the spread of the pandemic. Imports collapsed 30.1% in Q2 (Q1: -15.9% yoy), reflecting the freefall in domestic demand. Exports, meanwhile, fell a more moderate yet still relevant 11.7% in Q2 (Q1: -5.4% yoy), weighed down by lockdowns in main trading partner countries.
The coronavirus pandemic will wreak havoc on the already ailing economy, causing GDP to shrink sharply this year amid severe lockdown measures. Moreover, the evolution of the health crisis in the region adds a downside risk to the outlook, although the recent debt restructuring agreement reduces the short-term risk of financial turmoil.