The administration of President Javier Milei has introduced stringent austerity measures aimed at revitalizing Argentina’s struggling economy. However, the immediate impact has been severe, pushing the country into a recession within the first quarter of Milei’s term.
According to official government data published on Monday, Argentina’s gross domestic product (GDP) fell by 2.6% compared to the fourth quarter of 2023. Year-over-year, economic activity contracted by 5.1%, slightly better than the median estimate of a 5.3% decline forecasted by economists surveyed by Bloomberg. This downturn follows a 2.5% quarterly contraction in the final three months of 2023.
The early months of Milei’s administration have been marked by sharp cuts to real pensions and public sector wages, along with a halt in public infrastructure projects. Upon taking office in December, Milei devalued the peso by over 50% and removed hundreds of price controls. As a result, real wages fell by 17% from November to March, triggering a 10% drop in supermarket sales during the same period.
Key sectors such as construction, manufacturing, and retail have seen significant declines, partially offset by gains in agriculture and mining. Capital spending, a proxy for investment, dropped 23.4% from the previous year, and retail sales fell by 8.7%. Unemployment also rose to 7.7%, up from 5.7% in the previous quarter.
Despite the painful contraction, the government has reported five consecutive monthly budget surpluses and a faster-than-expected easing of monthly inflation, which decreased from 25.5% in December to 4.2% in May. The International Monetary Fund (IMF) anticipates a potential stabilization in activity by April, supported by an uptick in private credit and cement consumption, a rebound in agricultural production after last year’s drought, and improved consumer confidence, according to their latest Argentina report.
Economists and financial experts are closely analyzing the situation, offering insights into possible future scenarios for Argentina’s economy. Projections from economists surveyed by the central bank suggest GDP will fall by 3.8% this year, followed by a growth of 3.4% in 2025. Milei’s hallmark legislation, expected to win final approval in the lower house later this week, aims to contribute significantly to the economic rebound by relaxing labor laws, deregulating the energy sector, and incentivizing large foreign investments through tax breaks.
As Argentina grapples with the effects of these rigorous austerity policies, the coming months will be crucial in determining the country’s economic trajectory. Monitoring economic indicators and potential government adjustments will be essential in understanding how these measures will ultimately reshape Argentina’s economic landscape.
