Investment in Argentina

Argentina - Investment

Economy plunges in Q1 amid lockdown and ongoing debt renegotiations

Economic activity in the first quarter slumped 5.4% year-on-year, following Q4’s softer 1.1% drop, according to the Statistical Institute (INDEC). Another sharp contraction in domestic demand was largely behind the economy’s dismal performance, prompted by containment measures to combat the pandemic; fragile investor confidence; runaway inflation; and sky-high interest rates. On a quarter-on-quarter seasonally-adjusted basis, the economy tumbled 4.8% in Q1, following the 0.9% decrease observed in Q4.

Domestic demand sank 8.2% in annual terms in Q1 (Q4: -5.7% year-on-year). Private consumption tumbled 6.6% (Q4: -2.1% yoy) amid an ailing labor market, abysmal consumer confidence, elevated inflation and postponed spending decisions due to the Covid-19 emergency. Moreover, fixed investment collapsed 18.3% (Q4: -8.5% yoy), led by business closures and a significant contraction in investment in construction and machinery equipment, while government consumption fell 0.7% in Q1 (Q4: -1.6% yoy).

The external sector was also battered by the spread of the pandemic. Imports dived 16.0% in Q1 (Q4: -11.4% yoy), again reflecting plummeting domestic demand. Exports, meanwhile, fell 4.7% in Q1 (Q4: +7.6% yoy), weighed down by lockdowns in main trade partners.

Argentina’s ailing economy will contract sharply this year. The pandemic is further hammering domestic and external demand, as well as worsening the country’s troubled fiscal position. Avoiding further financial turmoil and gaining access to external financing sources will hinge on the outcome of ongoing debt renegotiations, which appear on the verge of collapsing.

FocusEconomics analysts see the economy contracting 8.8% this year, which is down 1.9 percentage points from the previous month’s forecast. In 2021, analysts see GDP rebounding 4.6%.