Argentina’s economic contracts as unemployment rises

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Argentina’s economy contracted again in the second quarter as unemployment rose as the country was hit by soaring inflation, government austerity and high interest rates.

Argentina’s gross domestic product declined seasonally 0.3% from the first quarter, the fourth contraction in five quarters, statistics agency Indec said Thursday, although it rose 0.6% compared to the previous year. Indec revised the first quarter figure to unchanged from the fourth quarter after initially reporting a 0.2% contraction during the period. The unemployment rate rose to 10.6% in the second quarter from 10.1% in the first.

Although GDP figures showed some potential for improvement in the economy, the result of the August 11 primary election changed the outlook for the rest of the year, according to Alberto Ramos, economist at Goldman Sachs in New York. .

The surprisingly strong performance of left-wing opposition candidate Alberto Fernández, who outclassed pro-business president Mauricio Macri by 16 percentage points in the votes that determined each party’s presidential candidate, pushed the peso down relative the dollar last month and upended expectations about the country’s economic situation. policies following the October 27 general election.

“We live in a completely different reality now” after the elections, said Ramos. “Now all bets are off.”

Mr Macri was elected 4 years ago on the promise of opening up the economy to more competition and repairing the damage done to the country’s competitiveness by the free spending policies of outgoing President Cristina Kirchner. Ms Kirchner is running in this year’s election as Mr Fernandez’s candidate for vice-presidency.

Mr Macri has lifted some taxes on agricultural exports, a major source of foreign exchange, and has started cutting government subsidies for energy and transport. His efforts were halted last year after a crisis of confidence in his government’s ability to pay off the country’s debt caused the peso to lose half of its value against the dollar over about five months.

Inflation has skyrocketed, with the 12-month rate peaking at 57.3% in April, which, together with rising interest rates and rapidly declining consumer purchasing power, doomed many businesses and drives up the unemployment rate.

“I used to work in a shoe factory, but because people barely had money to eat, they stopped buying shoes, clothes and other things. The owner fired us all and now I’m doing whatever I can, sometimes as a housekeeper, ”said Juana Molina, 42, who lives in the town of Morón near Buenos Aires. Ms Molina said she received a small grant from the government because she had two minor children.

If Mr. Fernández wins the October elections, as opinion polls most likely show, he will have to act quickly to help Argentines who have been affected by the current economic crisis, said Sergio de Piero, professor of political science. at University. of Buenos Aires.

Mr Fernández has already said he will increase superannuation payments, but he should also negotiate to reduce utility payments and other costs that have slammed Argentina’s purchasing power, said M . from Piero.

“He has to give people more money one way or another so they can start using again,” said Mr de Piero, who worked with Mr Fernandez’s team on the issues. social.

The statistics agency also said private spending was unchanged from the first quarter and fell 7.7% from the previous year, while government spending fell 0.8% in the last quarter. quarter and 1.7% over the previous year. Exports fell 0.6% from the first quarter, but jumped 15% from a year earlier, while capital spending rose 1.5% in the quarter and fell by 18% compared to the first quarter of 2018.

Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com

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