GDP growth loses momentum in Q1

The economy shifted into a lower gear in the first quarter of 2024, as GDP growth slowed to 0.6% year on year (Q4 2023: +2.0%). On a seasonally adjusted quarter-on-quarter basis, economic growth sped up to 0.9% in Q1 from the previous period's 0.4% growth, marking the best result in a year.

The annual downturn came chiefly on the back of weaker domestic demand. Household spending growth fell to 1.8% in Q1 (Q4 2023: +2.8% yoy), marking the weakest expansion since Q1 2021. In particular, expenditure on foreign tourism and education services detracted from growth. Additionally, government spending dropped at the sharpest pace in one-and-a-half years, contracting 1.8% (Q4 2023: -0.6% yoy) as education-related expenditure dipped in the quarter. Meanwhile, fixed investment declined again in January–March, partly due to concluding construction work at a cellulose plant and lower investment in the Ferrocarril Central project. That said, the decline was milder at 5.7% compared to the 10.2% decrease logged in the previous quarter. On the external front, exports of goods and services increased 4.5% on an annual basis in the first quarter, which was below the fourth quarter's 8.9% expansion. In addition, imports of goods and services deteriorated, contracting 3.8% in Q1 (Q4 2023: +3.1% yoy), marking the worst reading since Q1 2021.

Our panelists expect the economy to have gained steam in the second quarter and see economic growth in 2024 as a whole easily outpacing both 2023 levels and its prior 10-year average of 1.1% on rebounding public spending and fixed investment, plus accelerating export growth. That said, a slight slowdown in private consumption will limit the surge.

Analysts at the EIU commented: “Real GDP growth will accelerate to 3.2% in 2024, from an estimated 0.4% in 2023. The economy will benefit from a strong 2023/24 harvest, which will have positive implications for industrial production, for example for food processing. Firm industrial performance will, in turn, lift employment, which, combined with higher real salaries following favourable collective bargaining negotiations, will bolster private consumption. The construction sector will benefit from firm public investment in infrastructure and demand for real estate investment, especially from Argentina.” Itau Unibanco analyst Mario Mesquita added: “We have left our 2024 GDP growth forecast at 3.5% in light of the positive figures for 1Q24 and the beginning of 2Q24. The normalization of the agriculture sector (after a severe drought in 2023) and the solid momentum of the labor market support our call.”

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