World Economy

Argentine Showing Signs of Recovery

 Economic activity in June rose 0.3% compared with May. Economic activity in June rose 0.3% compared with May.

Argentina’s economic activity expanded 4% in June compared with the same period the prior year, government statistics agency Indec said, the latest sign of economic recovery ahead of legislative elections in October.

 Economic activity in June rose 0.3% compared with May, Indec said. The economy grew a cumulative 1.6% in the first half of the year, marking a continued recovery from a biting recession in the first half of 2016. The economy contracted by 2.2% overall last year, Mercopress reported.

June marked the fourth straight month of year-on-year gains, providing a boost to President Mauricio Macri’s market-friendly government ahead of October’s mid-term vote, where a positive result could give political momentum to the rest of his agenda, including reforms to the country’s tax code and capital markets.

His “Let’s Change” coalition performed better than market expectations in a primary vote on Aug. 13, virtually tying former populist president Cristina Fernandez in a senate race for politically crucial Buenos Aires Province. More economic improvement in the coming months could give Macri’s candidate the edge.

June’s expansion was led by a recovering manufacturing sector, which grew 6.2% after snapping a streak of 15 consecutive months of contraction in May. Agriculture, spurred by record wheat and corn crops, grew 4%.

Construction activity was up 13.2% compared with June of last year, driven by public infrastructure investment and growth in the real estate market as Macri’s government expands mortgage credits.

Also on Thursday, Indec said Argentina posted a trade deficit of $798 million in July, the seventh straight month with a negative balance. Exports grew 5.2% compared with the same month last year to $5.2 billion, while imports grew 29.9% to $6 billion.

 Cut in Subsidies

Argentina plans to cut energy and transportation subsidies worth 0.6% of gross domestic product next year as the government aims to lower the fiscal deficit to 3.2% of GDP, a treasury ministry official told Reuters.

The government is also depending on economic growth to increase tax revenues, and on public-private partnerships and a more efficient public sector to reduce spending, said the source, who asked not to be identified before the 2018 budget plan is officially presented to Congress in early September.

Spending on subsidies for electricity and home-heating natural gas ballooned under Fernandez, winning her support among the poor but raising the alarm among economists who warned that fiscal deficits were becoming unsustainable.

Macri began cutting subsidies in order to balance the budget shortly after taking office in December 2015. Hikes in gasoline, public transit and utility prices are key to the government’s goal to cut the deficit to 4.2% of GDP in 2017, down from 4.6% last year.

Government spending on such subsidies is expected to fall to 2.5% of GDP by the end of 2017, down from 3.6% last year, according to a J.P. Morgan report. With a 0.6-percentage point reduction next year, total subsidies spending would thus fall to 1.9% of GDP by the end of 2018.

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