Argentina’s economy hits rock bottom with GDP down 1.7% in second quarter

The Argentine economy has entered recession after confirming a contraction of GDP in the second quarter of 1.7% year-on-year, according to data published by the Argentine Institute of Statistics and Censuses (INDEC). Despite this, experts point out that the economy of the River Plate country has hit rock bottom and that by the end of the year, the improvement will be noticeable.

In the previous quarter, the growth figure was even worse (-5.2%) and in the last quarter of 2023 it closed with a decrease of 1.2%. With these figures, so far this year, Argentina its growth stopped at 3.4%. It can therefore be said that the country is in recession since, as the precepts of macroeconomics dictate, it has not experienced growth for three consecutive quarters.

The Argentine economist Gabriel Caamaño explained it in his account on the social network (this is the consensus today)”, he wrote.

The data show that it is clear that, despite the decline in economic activity, it has worsened compared to the previous quarter, but on the contrary, and this is something that has already been taken into account by the administration of Javier Milei. The strong economic reforms of the president suggested that the country would enter a kind of “V” or “U” shaped recovery, as confirmed by experts. elEconomista.es at the time.

In April of this year, Abeceb had already proposed a “V” scenario, that is, a very deep recession “but not very long”, where activity reaches its low point in the second quarter of the year. “Between April and May, this should begin to hit the ground and reverse”, estimates Elisabeth Bacigalupo. In this sense, it reaffirms that agriculture will act as a “shock absorber”, although it will not save the economy from recession.

The INDEC data clearly show this, since agriculture is the sector that has had the greatest dynamics in the second quarter, with a jump of 81.2%. But it must be taken into account that this is starting from a very low level since last year the country suffered the phenomenon known as “La Niña”, which caused a deep drought.

On the demand side, however, Only exports suffered from growthmore precisely 31.4%, while private consumption follows a sequence of repeated declines, recording a contraction of 9.8% in the second quarter of the year. Regarding public consumption, The drop was 6% between April and JuneFinally, gross capital formation decreased by 29.4%, still in annual terms.

This decline in the domestic market, caused by the loss of purchasing power, is for example the cause of a 22.2% drop over one year in construction between April and June. This has also caused a drop in industry (-17.4%) and wholesale and retail trade (-15.7%). It is clear that Milei’s shock therapy is slowing down these sectors, but this was already in his plans.

Thus, the draft budget for 2025, presented this week by the president himself before the Chamber of Deputies, provides that this year, despite the fact that from the second half of the year there was an improvementThe Argentine economy will close with a recession of 3.8%, compared to the 3.5% predicted by the consensus and international organizations. Subsequently, both the government and the IMF, among others, speak of a “rebound” of 5% by 2025, while the private consensus leaves it in the range of 3.5% to 4%.

Javier Milei’s ability to curb inflation and ensure the economy recovers in the second half of the year will be decisive in maintaining his political popularity. For now, the libertarian acknowledges that 50% of the Argentine population lives in poverty. But upon entering the Casa Rosada, the libertarian and his cabinet acknowledged that hard times were coming, but that this was “the last drink” until the economy recovered.