Argentina’s Economy Contracts by 5.8% Amid Austerity

25 July 2018

The decrease in economic activity in Argentina is recorded as the country applies IMF-sponsored austerity policies.

Argentina’s Statistics and Census agency, the Indec, announced Tuesday that economic activity contracted by 5.8 percent this May in comparison to the same month last year.

The report published by Indec also revealed economic activity decreased by 1.4 percent in comparison to April.

Reuters had projected an interannual contraction of 1.8 percent for May, and economic contraction is expected to deepen. Marco Peña, President Mauricio Macri’s chief of staff, said Tuesday “the next months will me more recessive, cold and stormy.”

According to analysts the contraction is due primarily to the drought that affected the country’s agricultural sector, which has an economic contraction of 35.2 percent, fishing with a drop of 29.2 percent and transport and communications with 4.9 percent contraction.

However another important source of the contraction is a decrease in internal demand, which has been affected by rising unemployment, inflation and currency depreciation. A reduction on internal demand mainly affects industrial growth.

Since Macri assumed the office of the presidency over 73,000 people have been layed off in the public and private sectors.

The manufacturing industry registered its first drop since April 2017, especially in the textile, chemistry, metalworking, oil, plastics and food sectors.

The construction sector grew by 4.4 percent,  which is below the 12.4 percent accumulated growth for 2018. According to Economist and Pagina 12 journalist Javier Lewkowicz, deceleration responds to a cut back in public works, which is expected to continue due to the government’s austerity policies.

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According to Lewkowicz “a worse result in economic growth is negatively impacting the Federal Administration of Public Income through Value-added taxes, debits, credits and income taxes. That means the government will need to intensify fiscal austerity.”

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