Argentina’s Economy Contracts, as Joblessness Rises
Argentina’s economy contracted again in the second quarter while unemployment rose, as the country was slammed by galloping inflation, government austerity and high interest rates.
Argentina’s gross domestic product shrank a seasonally adjusted 0.3% from the first quarter, the fourth contraction in five quarters, statistics agency Indec said Thursday, though it expanded 0.6% from a year earlier. Indec revised the first quarter figure to unchanged from the fourth quarter after first reporting a contraction of 0.2% in the period. The jobless rate rose to 10.6% in the second quarter, from 10.1% in the first.
Though the GDP figures showed some potential for an improving economy, the outcome of the Aug. 11 primary election has changed the outlook for the rest of the year, according to Alberto Ramos, an economist at Goldman Sachs in New York.
The surprisingly strong showing for left-wing opposition candidate Alberto Fernández, who outperformed pro-business President Mauricio Macri by 16 percentage points in voting that determined each party’s presidential candidate, sent the peso lower against the dollar last month and upended expectations about the country’s economic policies following the Oct. 27 general election.
“We’re living in a completely different reality now” after the election, Mr. Ramos said. “Now all bets are off.”
Mr. Macri was elected 4 years ago on promises to open up the economy to more competition and to undo the damage to the country’s competitiveness by the free-spending policies of outgoing President Cristina Kirchner. Mrs. Kirchner is running in this year’s election as Mr. Fernandez’s candidate for vice president.
Mr. Macri lifted some taxes on agricultural exports, an important source of foreign currency, and began cutting government subsidies for energy and transportation. His efforts were disrupted last year after a crisis of confidence in his government’s ability to pay the country’s debt resulted in the peso losing half its value against the dollar over about five months.
Inflation shot up, with the 12-month rate peaking at 57.3% in April, which along with higher interest rates and the rapid decline in consumers’ spending power doomed many businesses and sent the unemployment rate up.
“I used to work in a shoe factory, but since people barely had money to eat, they stopped buying shoes, clothes and other things. The owner fired us all and now I do whatever work I can find, sometimes as a housecleaner,” said Juana Molina, 42, who lives in the town of Morón near Buenos Aires. Ms. Molina said she receives a small subsidy from the government because she has two minor children.
If Mr. Fernández wins the October election, as opinion polls show is very likely, he’ll need to move quickly to help Argentines who have been hurt by the current economic crisis, said Sergio de Piero, a political-science professor at the University of Buenos Aires.
Mr. Fernández has already said he’ll raise retirement pension payments, but he should also negotiate to lower utility payments and other costs that have slammed Argentine’s purchasing power, Mr. de Piero said.
“He has to give more money to people somehow so they can start consuming again,” said Mr. de Piero, who has done some work with Mr. Fernandez’s team on social issues.
The statistics agency also said that private spending was unchanged from the first quarter and fell 7.7% from a year earlier, while government spending fell 0.8% in the quarter and declined 1.7% from a year earlier. Exports declined 0.6% from the first quarter but jumped 15% from a year earlier, while investment spending rose 1.5% in the quarter and fell 18% from the first quarter of 2018.