Argentina’s economic activity declined again in May, signaling an uneven recovery.
The national statistics agency INDEC reported that its monthly economic activity estimator EMAE (Estimador Mensual de Actividad Económica) fell by 0.5% in May, after seasonal adjustments. This marks the second consecutive month of decline, suggesting a loss of momentum in the recovery observed earlier this year.
Compared to May of last year, economic activity grew by just 0.2%. Economists surveyed by Bloomberg had anticipated annual growth of 2.5%. This discrepancy is among the largest in recent months and indicates a significantly weaker economic recovery than expected.
EMAE serves as a monthly indicator of economic activity and is often used as a real-time proxy for gross domestic product (GDP) estimates. It combines production indicators from key sectors to provide a timely reflection of the economy’s state well ahead of the official quarterly GDP data release.
Two consecutive months of decline in this indicator typically raise concerns, as it may signal a slowdown in economic growth, even if annual figures remain formally positive.
A two-speed economy
Overall statistics mask a significant divide between sectors oriented toward external markets and those reliant on domestic demand. Agriculture and mining continued to grow due to improved harvests and high global demand for lithium and other minerals.
Meanwhile, manufacturing and retail trade contracted. These labor-intensive sectors largely depend on household consumer spending, which remains under pressure from high inflation and stagnant real incomes. Consequently, export-driven growth has yet to translate into a broad-based domestic economic recovery.
This two-speed economy is typical of countries undergoing stringent stabilization programs. When the government cuts public spending and allows the currency to approach the market rate, export-oriented sectors typically benefit first, as their products become more competitive in foreign markets.
In contrast, families earning incomes in local currency, whose purchasing power has declined, are forced to cut back on everyday expenses. This negatively impacts shops, factories, and service sector companies that rely on domestic demand. This gap explains why official economic growth figures often do not reflect the reality faced by ordinary Argentinians.
Implications for Milei’s program
The administration of President Javier Milei is relying on a strict fiscal policy aimed at curbing inflation and restoring macroeconomic stability. In May, monthly inflation indeed slowed to 2.1% from 2.6% in April, indicating a further, albeit gradual, deceleration in price increases.
However, two consecutive months of declining economic activity raise questions about the social and political sustainability of the austerity measures. The unemployment rate has risen compared to last year, and real household incomes remain under pressure, increasing public discontent despite the slowdown in inflation.
The main challenge for the administration remains time. Reducing inflation from record highs is a significant achievement that could restore confidence and stimulate investment in the future. However, if this process is prolonged or its effects are too uneven, public patience may wear thin before the positive effects become noticeable. Weak import figures and tax revenues reported by INDEC confirm the trend of consumers continuing to restrain spending, and no government can ignore this dynamic indefinitely.
Source: The Rio Times
