(Bloomberg) -- Argentina’s economy recorded its best month in May since President Javier Milei took office late last year as investors look for signs of recovery from another recession.
Economic activity rose 1.3% from April, above the 0.1% median estimate from analysts in a Bloomberg survey and the first month of growth since Milei’s term began in December. From a year ago, the proxy for gross domestic product grew 2.3%, defying expectations for a decline of similar magnitude, according to government data published Thursday.
Milei has implemented drastic spending cuts that have helped cool monthly inflation to 4.6% in June from a three decade high of 25.5% at the end of 2023. In doing so, he has delivered a blow to pensions, wages and nearly all public works. Last month, the nation’s Congress approved legislation deregulating vast swaths of the economy and making the labor market more flexible.
What Bloomberg Economics Says
“Activity was surprisingly strong in May, but Argentina’s economy still has a long way to go. Consumer purchasing power remains depressed as wage growth lags inflation and a stronger peso is weighing on currency-sensitive sectors.”
-Adriana Dupita, deputy chief emerging markets economist
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The agriculture sector drove annual growth in May, more than doubling production from last year when the country suffered a brutal drought, while construction, manufacturing and retail declined, according to the report.
For the economy to restart, investors say the government must lift a cobweb of currency controls that’s discouraged companies from investing and even driven some away from South America’s second-largest economy. But the administration argues a disorderly exit without enough central bank foreign reserves could fan inflation further.
Just how much pain Argentines can stand, whether from high inflation or a slumping economy, is key to the future of Milei’s approval ratings, which for now remain above 50%. The International Monetary Fund estimates Argentina’s GDP will drop 3.5% this year, and rebound 5% in 2025.
--With assistance from Rafael Gayol.
(Adds Bloomberg Economics comment)
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