Argentina’s economy continued its downward trend for the fourth consecutive month in February as President Javier Milei’s economic shock therapy plan began to take effect. Economic activity declined by 3.2% in February compared to the previous year, which was less than the anticipated drop of 6% according to analysts surveyed by Bloomberg. On a monthly basis, activity decreased by 0.2%, as reported by government data on Tuesday. The economy had contracted by 1.9% in the fourth quarter of 2023.
Since assuming office in December, Milei has implemented measures such as lifting price controls, freezing public works, and devaluing the currency significantly. These austerity measures contributed to a slowdown in monthly inflation in the first three months of the year, following a peak of 26% in December. Milei has leveraged high inflation to control costs by allowing public wages and pensions to lag behind consumer price increases.
In a national television address on Monday night, President Milei celebrated the country’s first quarterly fiscal surplus since 2008. He emphasized that the surplus is vital in combating inflation, which has been a recurring issue in Argentina. While he remains optimistic about the progress being made, economists are more cautious. They view the fiscal surplus as positive news but express concerns about its long-term sustainability due to its impact on economic activity.
Some worrying statistics include a 24.6% annual decline in construction activity in February and a 12.6% drop in spending at small- and medium-sized businesses in March, which are the largest source of employment in Argentina. Economists surveyed by Argentina’s central bank anticipate a 3.5% contraction in gross domestic product for the year 2024 based on a March poll. As the economy faces challenges, both the government and experts are closely monitoring the situation to determine the best path forward.