(Bloomberg) — Argentina entered recession in the first quarter of the year as brutal spending cuts approved by President Javier Miley depressed consumption and activity.
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The gross domestic product decreased by 2.6% compared to the fourth quarter of 2023, according to official government data published Monday. Activity contracted 5.1% from a year earlier, slightly below the average estimate for a 5.3% decline among economists surveyed by Bloomberg. The negative reading follows a 2.5% quarterly contraction in the three months to December.
The first months of the year saw sharp cuts in real pensions and public sector wages and the halt of public infrastructure projects. When he took office in December, Miley also devalued the peso by more than 50% and eliminated hundreds of price controls. Real wages fell by 17% from November to March, leading to a 10% drop in supermarket sales over the same period.
The construction, manufacturing and retail sectors led the declines, offset by agriculture and mining, according to the government. Capital spending, an indicator of investment, fell 23.4% from the previous year, while retail sales fell 8.7%. The unemployment rate rose to 7.7% from 5.7% in the previous quarter, according to another set of government data.
However, the painful contraction in activity led to the government recording five consecutive monthly budget surpluses and a faster-than-expected decline in monthly inflation, from 25.5% in December to 4.2% in May. The International Monetary Fund expects a potential stabilization in activity in April as private credit and cement consumption return to the rise, agricultural production rebounds after last year’s drought and consumer confidence declines, according to its latest report on Argentina.
Economists surveyed by the central bank estimate that GDP will decline by 3.8% this year, followed by 3.4% growth in 2025. Miley’s landmark legislation is expected to receive final approval in the House of Representatives later this week, which It is expected to contribute significantly to the recovery by 2020. Easing labor laws, liberalizing the energy sector, and stimulating large foreign investments through tax breaks.
-With assistance from Rafael Gayol.
(Updates with sector declines in fourth paragraph)
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