Argentina GDP Review: 1.7% Contraction in Q2
Argentina’s GDP contracted by 1.7% in Q2 2024, marking three consecutive quarters of decline, largely due to Milei’s economic reforms. While agriculture grew by 80%, industry and consumption sharply declined. A 4.9% contraction is expected for 2024, with limited recovery in 2025, far below government projections. Inflation control and reserve accumulation are possible benefits.
Figure 1: Argentina’s GDP (Seasonally Adjusted, 2019 = 100)
Source: INDEC
Argentina’s National Institute of Statistics and Censuses (INDEC) has released the preliminary GDP figures for the second quarter of 2024. As widely expected by the markets, the Argentine economy continued to shrink in the second quarter with a 1.7% (q/q) contraction, marking three consecutive quarters of decline. Compared to the same quarter in 2023, the Argentine economy is producing 1.7% less. The recession caused by Milei’s shock economic plan was anticipated, but doubts remain about how long the contraction will continue.
Looking at the sectors, industry is taking the biggest hit. Construction is 22% lower than in Q2 2023, while manufacturing is down 17%. Agriculture, however, grew by 80%, recovering significantly from the droughts of 2023. Milei’s program focused on reducing demand, particularly from the government, to curb inflation and improve current account results. In terms of demand, investments are 30% lower than in Q2 2023, while household consumption shrank by 10%. The good news comes from a 30% increase in exports, but this sector represents a small share of Argentina's overall demand and has not been able to compensate for the contraction in the domestic economy.
It remains to be seen how the Argentine economy will recover from this downturn. We believe we will not see another contraction in economic activity in the coming quarters, but we are also skeptical of a “V-shaped” recovery. We anticipate that the Argentine economy will remain stagnant in the next few quarters as it adjusts to living without state subsidies and support. Some severe scars will likely constrain future growth prospects. However, this contraction may help Argentina reduce inflation and accumulate additional reserves, which could ultimately aid the government in addressing macroeconomic imbalances, albeit at the cost of recession.
We forecast the Argentine economy to contract by 4.9% in 2024, with a partial recovery of 1.6% in 2025. This is quite far from the Argentine government's projection of a 3.8% contraction in 2024 and 5.0% growth in 2025.his year is a 4.0% contraction with only a relative 1.4% recovery in 2025.