Argentina's Macrisis: GDP falls 2.6% in 2018; 7% in December

Data published today by Argentina's Statistics and Census Institute (INDEC) show that the nation's GDP fell 2.6% in 2018, and 7% in December from the same time last year.

The contraction in the region's third-largest economy was the most severe since 2009, at the depths of a worldwide financial crisis.

The sharpest decline this year came from agriculture, which plummeted 15.9% amid the worst drought since 2009.

Steep declines for 2018 were also seen in retail/wholesale trade (-5.1%), manufacturing (-4.3%), and transport and communications (-2.7%). Real exports, despite a 51% devaluation, slipped 0.5% in 2018.

Over 191,000 jobs were lost in 2018 - a loss is equivalent to 1.5 million jobs lost in the U.S.

Downward trend

Data show that the current downturn, which began in April, worsened rapidly throughout 2018.

GDP reached a growth rate of 3.9% in the first quarter; but since April has averaged a decline of 4.6%. The recession deepened to -7.5% in November and -7% in December - the sharpest declines since the 2002 collapse.

December data, in turn, show an outright collapse in retail/wholesale trade (-15.7%), manufacturing (-14.2%), and construction (-12.7%).

Recurring recession

This is the second recession since President Mauricio Macri took office, and as of December, GDP was 4.6% below November 2015 levels - when Macri was narrowly elected promising to spark growth with deregulation and tax cuts.

But three sharp devaluations and utility hikes of 3000% have hampered the economy and caused already high inflation rates to double to 47.6% last year - with real wages falling 17% since 2015.

The current crisis began after the collapse of a $60 billion carry-trade debt bubble known in Argentina as the "financial bicycle."

High-interest (50%) notes are still being issued to local banks to shore up the peso, costing the treasury $28 million in interest outlays daily.

From plaudits to bailout

Costly corporate tax cuts have meanwhile failed to spur investment or exports, and $61 billion has instead left the country since Macri took office.

Macri resorted to foreign borrowing to cover said losses, doubling Argentina's public foreign debt to $175 billion.

The ensuing crisis forced Macri to borrow $29 billion from the IMF since June 22 - part of a $57 billion bailout agreed to with the IMF in exchange for deep budget cuts which opponents see as both unconstitutional and recessionary.

The IMF - vocal supporters of Macri throughout his tenure - is expected to approve another $10.7 billion loan this March despite a 2018 budget deficit of 743 billion pesos ($26 billion), or 5% of GDP.

During a monitoring mission to Buenos Aires last week, IMF South America division head Roberto Cardarelli reportedly admitted in private that his "sole mission was to help guarantee Macri's re-election, at Washington's request."

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Argentine President Mauricio Macri entertains IMF director Christine Lagarde and IMF South America head Roberto Cardarelli (second from right) during a recent visit.

Cardarelli reportedly admitted in private that the IMF bailout is "unsustainable" and that his "sole mission was to help guarantee Macri's re-election, at Washington's request."