Currencies

Argentina economy seen up 1.5% in Q1 as stimulus offsets drought


BUENOS AIRES (Reuters) -Argentina’s economy likely grew 1.5% year-on-year in the first quarter of 2023, a Reuters poll of analysts showed, as central bank spending to prop up the peso and boost exports helped offset a historic drought that hurt grains production.

The South American breadbasket nation, a key exporter of soy and corn, is battling to stem an economic slowdown after one of its worst ever droughts devastated harvests, draining foreign reserves and weighing down the already weak peso currency.

Analysts said billions of dollars that had drained from central bank reserves had the silver lining side-effect of bolstering demand, even as the trend hurt the state’s financial position and ability to meet repayments.

“We are talking about some $6 billion that the central bank poured into the market and that, indirectly, helped sustain demand in the first three months of the year,” said Eugenio Mari, chief economist at Fundacion Libertad y Progreso.

“This helped moderate the negative shock of the drought,” Mari said, adding that a so-called ‘soy dollar’ exchange rate to boost grains exports had been positive too, while inflation over 100% spurred consumer spending with people reluctant to save.

The economy, however, is widely expected to dip into negative territory in the quarters ahead as the full impact of the drought hits home and amid political uncertainty in the run-up to general elections in October.

“We expect this will be the last quarter with a year-on-year rise for a while. In the second quarter, we’ll have the full impact of the drought and the drop will be significant,” said Lucio Garay Mendez, economist at consultancy Eco Go.

Argentina’s statistics agency is scheduled to release official GDP data later on Thursday.

(Reporting by Hernan Nessi; Writing by Adam Jourdan and Alistair Bell)

By Hernan Nessi



Source link

Leave a Response