GDP growth inches down in the first quarter

Economy remains robust: GDP growth waned to 3.4% year on year in the first quarter from 3.5% in the fourth quarter of last year, marking the third consecutive deceleration. Still, economic growth held its ground, outperforming the 10-year pre-pandemic average and ranking among the fastest in Latin America. On a seasonally adjusted quarter-on-quarter basis, economic growth ticked up to 0.5% in Q1, following the previous period's 0.3% expansion.

Softer private consumption drags on growth: Domestically, the primary drag on the year-on-year expansion came from private spending, whose growth slowed to 2.1% in Q1 from 2.7% in the previous quarter, likely weighed down by rising unemployment. On the flip side, public expenditure growth surged to a near three-year high of 4.3% (Q4 2024: +3.3% yoy), largely reflecting a greater number of school days compared to the same period last year. Fixed investment growth held steady at Q4 2024’s 4.2% in Q1, with robust capital outlays in equipment and machinery offset by waning momentum in construction sector investment. Externally, exports of goods and services rose 4.2% year on year in Q1, slightly underperforming Q4 2024’s 4.4% gain. Meanwhile, imports growth accelerated to 5.6% (Q4 2024: +3.8% yoy). As a result, net exports detracted 0.1 percentage points from overall GDP growth, contrasting the 0.3 percentage point contribution in Q4 2024.

External sector to weigh on GDP growth: Economic growth is expected to lose further steam in Q2 and then broadly stabilize in H2, dipping below its pre-Covid decade average of 2.9% because of higher trade frictions and interest rates. As a result, our Consensus is for GDP growth to moderate in 2025 compared to 2024. A fading base effect—following the near-complete recovery from the 2023 drought—and mounting U.S. protectionism are set to take a toll on exports. Even so, domestic demand should offer a cushion: Household spending is projected to pick up, supported by a tightening labor market, increased public investment and higher social outlays. That said, weaker-than-expected economic growth in key trading partners, notably Brazil and China, remains a key downside risk to the outlook.

Panelist insight: Commenting on the outlook, Itaú Unibanco analysts stated: “Our 2025 GDP growth forecast of 2.3% has upside risks, mainly due to last year’s carryover and a record harvest. Private consumption and spillovers from the macro adjustment in Argentina will likely continue to support growth.”

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