Argentina's real GDP contracts in Q2
Upward revisions to GDP figures for the first and second quarters have produced a stronger statistical carryover than we had initially factored into our projections. However, leading indicators for July were worse than anticipated. Taken together, the data suggest that sequential growth in the third quarter will only partly make up for the second-quarter contraction, with additional progress hinging on a normalisation of activity in the fourth quarter.
On the demand side, private and government consumption registered modestly positive sequential growth in the second quarter. However, the mild improvement in both components came from a low base, and they
remain below pre-pandemic levels. Investment contracted marginally in sequential terms amid coronavirusrelated disruptions; however, it remained above pre-pandemic levels owing to private investment by commodities producers and public investment in infrastructure. Nonetheless, lower domestic production meant that inventory destocking and net imports acted as a drag on sequential growth.
On the supply side, agriculture took a temporary hit on account of a weaker harvest, and livestock production was hampered by government restrictions on meat exports. Most secondary sectors—including manufacturing, mining and energy—saw modest improvement; the exception was construction, given that it is relatively labour-intensive. Unsurprisingly, services bore the brunt of Argentina's second Covid-19 wave. The only service sector to outperform expectations was retail, which benefited from an expansion of e-commerce.
We are cautiously optimistic about the outlook for the rest of 2021, as an accelerated Covid-19 vaccine rollout, an accompanying relaxation of mobility restrictions and a burst of pre-election spending will provide a shortterm boost to the economy. However, the recovery is likely to lose pace in 2022, assuming that the government tightens fiscal and monetary policy under an IMF deal. Failure to pursue policy consolidation could prove even more damaging for market sentiment, raising the risk of a new cycle of inflation, devaluation and recession.
Impact on the forecast
On balance, our estimate of real GDP growth of 7.8% in 2021 remains appropriate. We continue to forecast a slowdown in growth in 2022, to 2.9%.