Investment in Argentina

Argentina - Investment

Pace of economic contraction softens in Q3 on easing restrictions, but remains sizable

GDP contracted 10.2% year-on-year in the third quarter, moderating from the 19.0% dive recorded in the second quarter, amid the lifting of some Covid-19 restrictions.

Nevertheless, the pace of contraction was still considerable, reflecting the ongoing impact of the Covid-19 pandemic on both domestic and external activity. Private consumption plunged at a milder yet still pronounced rate of 14.7% year-on-year in Q3 (Q2: -22.3% yoy), amid downbeat consumer sentiment and an ailing labor market. Meanwhile, the contraction in public spending softened from 8.8% in Q2 to 6.5% in Q3, while fixed investment fell 10.3% in Q3 (Q2: -38.3% yoy), due to uncertainty surrounding both the evolution of the pandemic and the future course of government policies.

On the external front, exports of goods and services dived 17.0% in Q3, following Q3’s 13.6% slump, amid still-muted global demand and disrupted supply chains. Meanwhile, imports of goods and services declined at a milder yet still significant pace of 22.0% in Q3 (Q2: -30.5% yoy) due to a less pronounced contraction in domestic demand.

On a quarterly basis, economic activity rebounded 12.8% in Q3, contrasting the previous quarter's 16.0% plunge.

Looking ahead, the economy should recover somewhat in 2021 from this year’s pandemic-induced downturn, thanks to the reopening of the global economy. However, capital controls, runaway inflation, persisting macroeconomic imbalances and market-unfriendly policies will restrain growth, while uncertainty regarding the availability of vaccines poses a downside risk.

LatinFocus Consensus panelists see the economy growing 4.7% in 2021, which is up 0.2 percentage points from last month’s estimate, and 2.6% in 2022.