After successive years of growth, recently released statistics suggest that Argentina’s economy has stalled, leading some analysts to suggest that a period of stagflation is looming.
According to Goldman Sachs economist Alberto Ramos, “Stagflation arrived with a vengeance–Argentina has now the weakest economy and the highest inflation in the hemisphere.”
The economy contracted in May for the first time since August 2009, with growth sliding 0.5% on the year, according to national statistics agency Indec.
Indec figures show that Gross Domestic Product (GDP) expanded an average of 7.6% a year between 2003 and 2010, last year topping out at 8.9%.
Contributing to this is a decline in manufacturing combined with a drop in exports to Brazil (Argentina’s top trade partner). Indec said factory output sank 4.7% in June 2011 to 2012, below May’s 4.6% decline. This marked the industry’s worst performance since January 2009.
The government posted a primary deficit of $727 billion in June, a sharp swing from the surplus of $934 million a year earlier.
As quoted in The Wall Street Journal, Argentine President Cristina Fernández de Kirchner points to problems in Brazil and the economies in Europe, China and the US as causing the country’s current economic bind. “The world is falling on top of us,” she said in a recent speech.
However, others are pointing to Government imposed US dollar restrictions as a cause of the massive currency flight. About US$4.44 billion in foreign-currency deposits have left the banking system since President Fernández imposed the first set of exchange controls on 31st October.
In May alone of this year, depositors withdrew about US$1.41 billion.
Restrictions are feeding into a black market where, according to dollarblue.net, a website tracking the formal and informal exchange rate, Argentines are buying one US dollars at a rate of $6.40.
Economists are quoting inflation as running at an annual rate of more than 20%.
On Friday, Economy Minister Hernan Lorenzino dismissed the black market in a radio interview. “This is an absolutely marginal matter that doesn’t have any direct impact on most important macroeconomic variables,” Lorenzino said in the radio interview. “It’s absolutely illicit and should be considered just that. It’s just like any crime.”