Argentine economy snapshot: faltering recovery after stagnation

By Hernán Nessi

BUENOS AIRES (Reuters) – Argentina’s struggling economy is expected to stagnate and begin a buoyant recovery in the second half of the year, according to forecasts by analysts and economists.

Argentine economic activity has declined sharply since the end of last year, a consequence of a crisis inherited by libertarian president Javier Milei, who took office in December and is promoting a tough austerity program along with the deregulation of the economy.

Although Milei’s policies have balanced public accounts and appear to be slowly cooling an inflation rate of around 280%, among the highest in the world, consumption has collapsed and the economic contraction has pushed half the population into poverty.

Empiria Consultores economist Federico Rouco said that, unless there is some major disturbance in the exchange rate, the economic contraction should gradually ease.

“What lies ahead appears to be a slow recovery, a sticky floor,” he said.

Rouco noted that, with the exception of the agricultural and mining industries, the economy shrank by 6.7% in the first four months of the year: “Real wages and employment are falling and it will take some time for them to return to previous levels.”

Rouco added that the sectors most important for revitalizing the economy are among the hardest hit.

The construction sector was especially hit by the loss of public expenditure and the suspension of government projects that were far from being completed.

Construya, an association that groups 12 large construction companies, said that its index of private sector sales volumes, although it recovered 10% month-on-month in seasonally adjusted terms in June, fell 32% compared to the previous year .

“We are seeing a gradual improvement after several months of deep contraction. We see this as a positive trend,” Construya said in a statement.

Analysts consulted by Reuters predict that economic activity will begin to rise very slowly from the second half of 2024.

Fundacion Libertad y Progreso chief economist Eugenio Mari said he expects May’s economic activity indicator, known as EMAE, to grow month-on-month, although it is still expected to mark a decline compared with the previous year.

“There are still a few months left for the economy to return to the levels observed in the first half of 2023,” he said. “Several indicators suggest a change in trends, but we are still far from a strong recovery,” he said.

(Reporting by Hernan Nessi; writing by Sarah Morland; editing by Alistair Bell)