According to the Statistical Institute (Instituto Nacional de EstadÃsticas y Censos, INDEC), economic activity in Argentina in Q1 decelerated from Q4’s 3.9% year-on-year expansion, but remained strong at a 3.6% increase.
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The print marked the fifth consecutive quarter of growth and came in slightly above market expectations of a 3.5% expansion. On a quarter-on-quarter basis, economic growth edged up from 1.0% in the fourth quarter to 1.1% in the first quarter.
The deceleration in Q1 reflected slower growth in the domestic economy (Q1: +6.4% year-on-year; Q4: +7.9% yoy). Growth in private consumption edged down from Q4’s 4.5% increase to 4.1%.
Private consumption was likely constrained by a weaker currency and subsidy cuts in public utilities, which fanned inflation and eroded consumers’ disposable incomes.
Fixed investment expanded 18.3% in the first quarter, slightly below the 19.3% recorded in the previous quarter. Buoyant activity in construction and the manufacturing sectors were largely behind the strong quarterly expansion in fixed investment.
Q1’s print underscored the recovery of the Argentine industrial sector, in part due to the government’s pro-market reforms and efforts to lure foreign capital.
Meanwhile, government consumption contracted 1.4% in the first quarter, contrasting the 2.0% increase recorded in the fourth quarter of 2017.
The decline reflected lower government spending on subsidized public utilities such as public transportation fares and electricity amid the government’s efforts to rein in fiscal spending.
The external sector, meanwhile, improved but still had a poor performance in the first quarter, as growth in imports outpaced growth in exports.
Growth in imports moderated from 22.8% in Q4 to 16.5% in Q1, while exports jumped from a 0.4% expansion in Q4 to a 6.4% increase.
Strong growth in imports in large part reflected healthy private consumption and demand for intermediate goods from industry. A depreciating currency in the January-to-March period made Argentine exports more competitive.
It is widely agreed among analysts that Q1’s print will be the final reading of robust economic growth in the economy this year.
Growth in Q2 is expected to decelerate due to the effects of severe weather in the first months of the year, while the impact of financial turbulence and the IMF assistance program agreed to in June will be felt from the second half of the year onwards.
The extent to which the Argentine economy will slow, or if the country will enter a technical recession in the upcoming quarters, remains to be seen.
However, FocusEconomics panelists agree that growth will slow substantially in 2018. They see growth of 1.7%, vastly below 2017’s 2.9% expansion and the previous month’s 2.3% forecast.
Forecasts may be revised down further once the final terms of the IMF deal are voted on by the IMF board, and the impact of ongoing financial volatility on the currency and the economy become more evident. ■