(Bloomberg) — Argentina’s economy contracted in December by the most since the peak of the Covid-19 pandemic as newly elected President Javier Milei put in motion shock austerity measures that slammed the brakes on consumption.
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Economic activity in December fell 3.1% from November, according to government data published Thursday, a drop not seen since April 2020. From the same month a year earlier, activity fell 4.5%, more than the 3.2% decline forecast by economists surveyed by Bloomberg.
The contraction was driven by declines in the financial sector, manufacturing and commerce.
Since taking office Dec. 10, Milei sharply devalued the official exchange rate, froze public works and cut public sector jobs to close the yawning deficit at the root of annual inflation running above 250%. Milei’s government achieved the first monthly budget surplus in over a decade in January by allowing inflation to eat away at pension payouts and slashing generous energy subsidies.
Read More: ARGENTINA REACT: Activity Slide Augurs Tough GDP Growth Outlook
The bitter shock measures pushed 57% of the population below the poverty line in January, from about 45% last year, according to a study by the Universidad Católica Argentina. In protest over low wages, worker unions announced a slew of demonstrations and walk-outs, including a 24-hour health worker strike Thursday.
Read more: Strikes Pile Up in Argentina Amid Sting of Milei’s Shock Therapy
“We always said it would be difficult,” Economy Minister Luis Caputo said in a TV interview Wednesday. “We’re doing the impossible, so that the transition is less painful, but there was no other way.”
Retail sales took a brutal 28.5% plunge in January compared with the previous year, with the greatest cuts in consumption of food and drink and pharmaceuticals, according to the Argentina Confederation of Medium Companies, or CAME. Economists surveyed by the central bank forecast that gross domestic product will contract 3.0% this year.
–With assistance from Rafael Gayol.
(Updates to add scope of change in first and second paragraphs, reasons for contraction in third paragraph)
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