Argentina enters technical recession amid austerity measures

Argentina has officially entered a technical recession in the first quarter of the year.

Official data released on Monday points out the economic challenges faced during President Javier Milei's administration.

The country's gross domestic product (GDP) shrank by 2.6 per cent in the first quarter compared to the final quarter of 2023. This marks the second consecutive quarter of contraction, meeting the usual definition of a recession.

Add WION as a Preferred Source

President Milei, who assumed office in December after a surprising election victory, has put in place strict austerity measures to bring back fiscal stability.

His campaign was notable for its striking imagery, such as the use of a chainsaw to symbolise his dedication to reducing government spending and achieving a balanced budget.

The most recent data from the INDEC statistics agency has shown a significant increase in the unemployment rate, which has risen to 7.7 per cent in the first quarter from 5.7 per cent at the end of last year.

This means that around 300,000 more people are unemployed compared to the previous quarter.

Additionally, there has been a sharp increase in inflation and a recession, which have greatly affected consumers and led to decreased sales in important sectors such as beef.

Moreover, budget cuts have caused a halt in state infrastructure projects by Milei, resulting in significant job losses in the construction industry.

As an economist and former pundit, Milei has argued that strict fiscal measures are essential for stabilising Argentina's finances after years of deficits and frequent sovereign debt defaults. He believes these measures will eventually rebuild the country's reputation with global investors.

Despite the immediate economic pain, Milei's focus on achieving a fiscal surplus has had a positive effect on the financial markets, with bonds and equities rallying significantly.

The broader economy has suffered, with rising poverty and homelessness becoming more prevalent. Milei remains confident that the tough fiscal approach will eventually lead to economic recovery.

The data for the first quarter showed a year-over-year economic decline of 5.1 per cent, which was slightly better than analysts' expectations of a 5.25 per cent contraction.

Private consumption decreased by 6.7 per cent yearly, while public consumption also dropped by 5 per cent during the same period.

Imports experienced a significant decline of 20.1 per cent, whereas exports showed a notable increase of 26.1 per cent.

(With inputs from Reuters)