Argentina's economy contracted in December to its highest level since the pandemic

Argentina’s economy contracted in December to its highest level since the pandemic

Argentina’s economy contracted in December by its largest level since the peak of the Covid-19 pandemic, when newly elected president Javier Milei launched shocking austerity measures that curbed consumption.

Economic activity in December fell 3.1% compared to November, according to government data published on Thursday, a drop not seen since April 2020. Compared to the same month the previous year, activity fell 4.5%, more than the 3.2% drop expected by economists surveyed by Bloomberg. The contraction was driven by declines in the financial sector, manufacturing and trade.

Since taking office on December 10, Milei has drastically devalued the official exchange rate, frozen public works and cut public sector jobs. to close the enormous deficit that was at the root of annual inflation that exceeds 250%. Milei’s government achieved its first monthly budget surplus in more than a decade in January by allowing inflation to eat into pension payments and cutting generous energy subsidies.

The bitter shock measures pushed 57% of the population below the poverty line in January, from around 45% last year, according to a study by the Argentine Catholic University. In protest of low wages, labor unions announced a series of demonstrations and strikes, including a 24-hour health workers’ strike on Thursday.

“We always said it would be difficult,” Economy Minister Luis Caputo said in a television interview on Wednesday. “We are doing everything we can to make the transition less painful, but there was no other way.”

Retail sales suffered a brutal drop of 28.5% in January compared to the previous year, with the biggest cuts in the consumption of food and beverages and pharmaceutical products, according to the Argentine Confederation of Medium Enterprises (CAME). Economists surveyed by the central bank forecast that gross domestic product will contract 3.0% this year.