Argentina: Activity declines at a more moderate rate in Q3
GDP slid at a softer rate of 0.8% year on year in the third quarter, above the 5.0% contraction logged in the second quarter. On a seasonally adjusted quarter-on-quarter basis, GDP bounced back, increasing 2.7% in Q3, contrasting the previous period’s 2.7% decrease. Q3’s reading marked the best result since Q1 2021.
Private consumption growth fell to an over two-year low of 0.3% in the third quarter (Q2: +0.7% yoy), as runaway inflation and downbeat sentiment weighed on spending. Meanwhile, government consumption growth expanded 1.8% (Q2: +3.3% yoy). That said, fixed investment rebounded, growing 0.8% in Q3, contrasting the 1.6% contraction recorded in the previous quarter, partially thanks to a less challenging base of comparison.
On the external front, exports of goods and services fell 4.8% on an annual basis in the third quarter, still affected by a severe drought, following the second quarter’s 11.2% contraction. Conversely, imports of goods and services growth slowed to 2.6% in Q3 (Q2: +3.1% yoy).
GDP likely continued to contract in Q4, hit by hyperinflation, capital controls, a collapsing peso and skyrocketing interest rates. That said, significant uncertainty surrounds next year’s economic performance due to the wide-ranging reform program advocated by President Milei. The lagged effects of hyperinflation will restrain consumption, but rising exports should cushion the downturn. A shift towards more market-friendly policies is an upside risk in the medium term, but social unrest could delay reforms.
Commenting on the outlook, Itaú Unibanco’s Andrés Pérez and Diego Ciongo stated:
“As a result of better-than-anticipated activity data in 3Q23, our 2023 GDP growth forecast of -3.0% now has an upward bias, that is pointing to a smaller annual contraction in 2023. The contraction in economic activity is likely to continue in 2024 with a decline of 2.5%, despite favorable drought-related base effects, as the ambitious stabilization plan addresses Argentina’s severe macro-financial imbalances.”