Argentina's recession worsens as economy contracts beyond expected

Argentina's economy contracted 1.7 per cent in the second quarter compared with the preceding three months, according to the country's statistics agency, which said that sent the embattled South American nation deeper into recession.

Argentina's gross domestic product fell 1.7 per cent year-over-year, worse than analyst forecasts of a 1.4 per cent contraction compared with the year-earlier period.

This is the fifth successive annualised quarterly contraction and the third successive quarter-on-quarter for the South American economy.

Argentina's major agricultural sector led the growth, rising 81.2 per cent from a year earlier, and fishing was up 41.3 per cent. Still, construction dropped 22.2 per cent, manufacturing fell 17.4 per cent and retail activity slipped 15.7 per cent, INDEC said.

The slumps in consumption and private investment continued, INDEC said, even though Argentina reduced its imports and increased its exports. Financial services, real estate, hotels, and restaurants also saw activity shrink.

Argentina slipped into a technical recession - two straight periods of quarter-on-quarter GDP contraction - in the first quarter of this year. It closed in 2023 with a 1.6 per cent contraction.

The libertarian President Javier Milei, who took office in December, has pursued hard austerity measures that have pounded economic activity and forced poverty and unemployment up.

The government says the cost-cutting measures are required to restrain the world's highest inflation, which is hovering above 250 per cent, rebuild its foreign reserves, and reverse years of deep fiscal deficits.

While monthly inflation has hovered around the same level since May, Milei's government on Sunday published a 2025 draft budget, putting inflation at just above 18 per cent next year, GDP at 5 per cent next year, and a further 5 per cent in 2026.

Argentine markets cheered Milei's plan for a "zero" deficit budget, but they fell slightly on Wednesday following the US Federal Reserve's announcement it would cut interest rates by 50 basis points.