After surging 8.9 percent in 2011 the Argentine economy grew only 1.9 percent in 2012. Most of the weakness was concentrated in exports and investment but domestic consumption was also softer.

Fourth Quarter Ends on a Positive Note


The Argentine economy had serious difficulties expanding in 2012, with growth slowing down from an impressive 8.9 percent in 2011 to only 2.0 percent in 2012 after the external sector collapsed due to both, weakness in the global economy as well as by political decisions taken by the Kirchner administration. On the positive side, real GDP grew 2.1 percent year-over-year in Q4.

Real exports of goods and services declined 6.2 percent in 2012 with a steep drop of 12.5 percent in Q4. In an attempt to save foreign reserves, which has been used to finance its fiscal accounts and pay debts, the administration put in place several measures that prevented importers from importing goods into the country. Some of these measures included provisions to match imports with exports, in value terms. That is, some companies that only dealt with importing goods into the country had to become exporters in order to be able to import. As a consequence of these policies, real imports of goods and services also dropped, 5.2 percent, compared to 2011. Meanwhile, real fixed investment also suffered, as much of capital investment comes through imports. Real gross fixed investment dropped 4.4 percent in 2012 after surging 16.9 percent in the previous year. Real personal consumption expenditures, while remaining positive in 2012, slowed down considerably from 10.8 percent in 2011 to only 6.7 percent in 2012. Some of this slowdown in consumption was triggered by government policies to prevent capital outflows as Argentinians stepped up purchases of U.S. dollars in the parallel market in order to avoid the effects of higher inflation, thus postponing consumption today.



Construction and Agriculture, Some of the Most Affected Sectors


On the production side, the Argentine construction and agricultural sectors were some of the most affected by government policies implemented in 2012. Agriculture represented 3.7 percent of GDP in 2012 and dropped 11.3 percent while the construction sector represented 5.4 percent while falling 2.6 percent during the year. The construction sector’s weak performance during the year was a consequence of government policy preventing individuals from purchasing U.S. dollars at the official exchange rate. The Argentine real estate market is basically a cash purchase market and mostly dominated by U.S. dollar purchases. Meanwhile, the agricultural sector posted a meager year due to poor climate and crops. Agriculture is one of the preeminent dollar sectors in that both, exports of agricultural products are a source of hard currency for the government through the trade surplus as well as a source of fiscal revenues through the taxation of agricultural exports.