Argentina posts weakest growth since 2020 as drought hits farm sector

A costumer counts money before buying tangerines, as Argentines struggle amid rising inflation, in Buenos Aires, Argentina May 11, 2023. REUTERS/Agustin Marcarian/File photo

BUENOS AIRES  -Argentina’s economy grew 1.3 percent year-on-year in the first quarter of 2023, the slowest rise since late 2020, as central bank spending to prop up the peso and boost exports offset a historic drought that has hammered grains production.

The INDEC statistics agency said in a report on Thursday that the farm-driven economy also grew 0.7 percent versus the previous quarter, while unemployment edged up to 6.9 percent from 6.3 percent before.

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 percent 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.