Argentina's economic recession has further deepened, with data from the National Institute of Statistics and Census (INDEC) showing that the Gross Domestic Product (GDP) fell by 1.7% quarter-on-quarter in the second quarter of 2023 and also by 1.7% year-on-year, exceeding analysts' expected decline of 1.4%. This marks the fifth consecutive quarter of year-on-year GDP decline and the third consecutive quarter of quarter-on-quarter decline, illustrating the depth of the recession.
Despite the overall economic contraction, the agriculture and fishing sectors performed remarkably well, with agriculture growing by 81.2% year-on-year and fishing by 41.3%. However, these gains were not enough to offset the weak performance in other sectors, with construction plunging by 22.2%, manufacturing shrinking by 17.4%, and retail falling by 15.7%, further dragging down the overall economy.
Meanwhile, the persistent sluggishness in consumption and private investment has also exerted pressure on the economy. Although Argentina has somewhat alleviated external pressures by reducing imports and increasing exports, the financial services, real estate, and hospitality sectors have all witnessed significant contractions.
Argentina entered into a technical recession earlier this year, with the economy projected to contract by 1.6% for the entire year of 2023. The newly appointed President Javier Milei has implemented stringent austerity measures aimed at controlling soaring inflation, rebuilding foreign exchange reserves, and reducing the fiscal deficit. While these measures have significantly hindered economic activity and increased poverty and unemployment rates, the government deems them necessary steps to address Argentina's ongoing economic crisis.
Despite the current high monthly inflation rate, the Milei government's proposed 2025 budget draft forecasts a sharp drop in next year's inflation rate to around 18%, with GDP growth expected to reach 5% in both 2025 and 2026. The Argentine market has reacted positively to the "zero deficit" budget proposal, although market performance dipped slightly before the Federal Reserve announced a 50 basis point rate cut on Wednesday.
