Economy extends downturn in June before midterms

Argentina’s economy contracted in June for the fourth month this year just before interest rates soared in July, a slight setback for President Javier Milei before the country heads to midterm elections in October.

Economic activity fell 0.7 percent from May, below economists’ estimates for a 0.2 percent dip. From a year ago, the economy expanded 6.4 percent, more than expected, according to government statistics published Wednesday.

The drop in June activity aligns with a consumer spending setback in recent months as wages adjusted for inflation fell into negative territory earlier in the year. Despite Argentina’s agriculture harvest driving exports and sharp growth in Argentine oil fields, the consumer outlook remains fragile after unemployment in the first quarter reached its highest level in nearly four years.

“Weaker Argentine activity in June raises the possibility that GDP may have contracted in the second quarter, cutting short the rebound that began in mid-2024. The outlook isn’t much better. Market-based rates surged in July after changes to the monetary policy framework, and are holding high in August. That risks an economic downturn, rather than a stall, and may jeopardise the analyst consensus of five percent growth this year," said Adriana Dupita, Bloomberg's Brazil and Argentina economist

In July, interest rates soared as the government unwound holdings of central bank notes and the peso fell 12 percent, which economists widely expect to further dampen economic activity. This week the TAMAR, the rate governing private deposits, hit an annual rate of 56 percent, a historic high since its creation, compared to 12-month inflation expectations below 30 percent.

Argentines will head to the polls in early September to vote for the Buenos Aires Province legislature and later, to renew Argentina’s Congress in late October. The elections are widely expected to be a referendum on Milei’s government.

Economists forecast growth for the year at five percent, according to the Central Bank’s July monthly survey.