By Hernan Nessi
Argentina's economic activity is projected to fall in June compared to the same month last year, reversing a rare increase seen in May amid tough austerity measures and cost-cutting under libertarian President Javier Milei.
The median forecast from 16 analysts predicts a 1.9% year-on-year decrease in economic activity for the sixth month of the year, down from May's 2.3% rise. This decline is attributed to weak consumption and construction sectors, despite growth in grains and gas industries.
President Milei's cost-cutting measures have led to fiscal surpluses and increased central bank reserves, but have also resulted in a significant decline in consumption, construction, and manufacturing.
"The major cities, which are heavily reliant on consumption, industrial, and construction sectors, are experiencing a notable downward trend," said economist Pablo Besmedrisnik from VDC consultancy.
On the other hand, agriculture is expected to bounce back from a low base recorded a year ago, and the oil and gas sector is anticipated to grow due to increased shale production, according to Besmedrisnik.
Analysts' forecasts range from a maximum decline of 3.2% to a maximum growth of 2.0%.
Research director Juan Massot from the Universidad del Salvador in Buenos Aires mentioned that while some primary sectors like agriculture, mining, and hydrocarbons are growing, sectors dependent on domestic consumption and real income of the population are not performing as well.
Economists believe that Argentina's recovery will be gradual as the government focuses on controlling monetary expansion and implementing a restrictive fiscal policy to address an annual inflation rate of over 260%, the highest in the world despite a recent slowdown.
Argentina's statistics agency INDEC is set to release its monthly economic activity estimate for June on Wednesday.
Analysis: Argentina's economy is facing challenges with a projected decline in economic activity, driven by weak consumption and construction sectors. President Milei's cost-cutting measures have led to fiscal surpluses but have impacted key industries. Agriculture and oil sectors show promise, but the overall recovery is expected to be slow due to high inflation rates. Investors should monitor the situation closely and adjust their strategies accordingly to mitigate risks and capitalize on potential opportunities.