The Argentine economy could have hit rock bottom. After suffering a 3.4% recession in the first halfactivity appears to have recovered over the summer, showing some growth. Although leading indicators present mixed signals, all indications are that Argentina could experience a stronger economic recovery than initially expected. Despite the austerity measures implemented by Javier Milei to balance public accounts, the Argentine economy recorded a recovery of 1.7% in the month of July compared to the previous month, with some sectors showing signs of improvement after a devastating first half. The sector experiencing the strongest growth is that of “mining and quarries” thanks to the strong growth in gas and oil production.
Faced with all the adversities facing the economy (rampant inflation, debt maturities, etc.), the primary sector, just like gas and oil, have become this sort of light at the end of the tunnel which seems to guide the recovery. of the country. “After contracting for three consecutive quarters, economic activity began to show signs of recovery in the third quarter of 2024,” comments BBVA Research in a report published this week.
“In July, various indicators show monthly growth but in August, the results are mixed. We maintain a forecast of a GDP decline of 4% for 2024 and a recovery of 6% in 2025. The recovery of the agricultural sector after last year’s severe drought is accompanied by a solid surplus in the energy balance, due to falling LNG imports and growing oil exports“, comments BBVA Research. This bank forecasts a merchandise trade surplus of $17.6 billion for this year.
This report coincides with the recent publication of the Economic Activity Estimator, an indicator that serves as a provisional measure of quarterly variation in economic activity. Gross domestic product (GDP)recorded a decrease of 1.3% in July compared to the same month of 2023, but however already showed a growth of 1.7% compared to the previous month, as reported last week by the National Institute of Statistics and Censuses (Indec).
The recovery of Argentina
From J.P. Morgan They also express their surprise at this data: “We had expected a stabilization of activity in the third quarter, after the drastic fall in the first half. July activity data, released this week, exceeded our expectations, increasing by 1.7% month-on-month after seasonal adjustment,” says the investment bank.
This data, if sustained over time, would imply that the recovery is more powerful than expected. Economists at JP Morgan do their math, noting that “taking the above into account, sequential growth over the past three months has converged to just -1% year-over-year, a substantial improvement from declines of 8, 4% and 6.8% over one year. -over a year suffered in the first and second quarters respectively. This places the third quarter carryover effect at a very encouraging rate of 6.9% year-on-year.“, say the economists of the North American bank. Despite everything, in their projection table for 2025 they continue to keep Argentina’s expansion slightly below 5%, a lower forecast than that of BBVA Research.
However, the report emphasizes the positive surprise: “The details are just as promising. Our estimates suggest that non-farm activity also increased seasonally, by a solid 1.6% month-on-month. Additionally, these monthly increases appear widespread. , with sectors such as manufacturing, construction, mining and trade showing a strong rebound,” they say from JP Morgan.
Milei’s strength
The moderation of inflation (even if it remains at unsustainable levels) has allowed real wages to start increasing in Argentina. This means that employee compensation is now increasing at a faster rate than prices, which has started to increase the purchasing power of Argentines, which should start to be reflected in their consumption and investment decisions.
“Despite the strong adjustment that the government’s fight against inflation implied, Javier Milei maintains high popular support for his leadership… In addition, the amounts received from the regularization of savings exceed expectations, increasing reserves gross, which will leave room for greater dollar credit expansion,” they say from BBVA Research.
In total, BBVA Research concludes that GDP will decline by 4% this year, but rebound strongly by 6% in 2025. At the same time, inflation will increase from an average of 130% this year to an average of 40% in 2025, which is insufficient. but encouraging deflation. All this while maintaining a budgetary and current account surplus which is gradually contributing to improving the reserves and the financial situation of the country, which remains unsustainable today.
