Behind the Positive Growth... The Reason for Argentina's Economy Declining for Two Consecutive Months

1) What Happened

Argentina's June EMAE (Economic Activity Index, a monthly estimate of real GDP) recorded a month-on-month decline of 0.7%, marking a decrease for the second consecutive month. INDEC, the official statistics agency, simultaneously reported a year-on-year increase of 6.4%, indicating a "perceived strength." In other words, while there is strong year-on-year growth, the monthly figures show a slowdown. indec.gob.ar

This news was quickly reported by Brazil's economic media, emphasizing the consecutive decline with "May also negative (reported as -0.2%)." However, INDEC's May publication stated a month-on-month decline of 0.1%, which, though a slight difference, aligns with the trend of "weakness." InfoMoneyindec.gob.ar

2) Behind the Numbers: Why "Year-on-Year Positive × Monthly Negative"?

The year-on-year increase of 6.4% in June reflects a recovery from the previous year's downturn, price trends, and base effects. On the other hand, the seasonally adjusted "month-on-month" figures represent the economic momentum. The consecutive declines from May to June suggest a slow recovery pace, with domestic demand still "cool." Domestic media also shared the sentiment of a "two-month consecutive decline" and "four negative months in the first half," indicating a plateau. LA NACIONAmbito

3) Sectoral Bright and Dark Spots

According to INDEC, in June, 12 industries showed year-on-year growth. Notably, financial intermediation (+28.7%) and **wholesale and retail (+11.5%)** contributed to the increase. On the other hand, fishing (-74.6%), public administration and social security (-0.7%), and **other services (-0.7%)** were negative, collectively dragging down the growth rate by 0.46 points. There is significant variation among industries, characterized by uneven demand recovery. indec.gob.ar

4) Macro Environment: The "Three-Way Struggle" of Exchange Rates, Interest Rates, and Income

Factors discussed as reasons for the recovery's stagnation include: ① the real exchange rate (excessive currency appreciation/pressure on export profitability), ② the interest rate environment (financial conditions prioritizing inflation control), and ③ the delay in the real recovery of household income. Pre-surveys also hinted at a slowdown in momentum despite strong year-on-year figures for June. Leading indicators from July onwards are mixed, with the focus on whether policy interest rates, exchange rate management, and nominal wage growth can support a "recovery." Reuters

5) Market and Social Media Reactions (Summary)

• Official Announcements: INDEC and the Ministry of Economy's accounts limited their statements to the simultaneous presentation of "year-on-year +6.4%" and "monthly -0.7%," emphasizing **"consistent statistical explanations."** They maintained a restrained tone, avoiding excessive optimism or pessimism. X (formerly Twitter)

• Economists:

  • "The level slightly exceeds the 2023 high but does not reach the 2022 peak" (data level confirmation). They pointed out the **"sideways range."** X (formerly Twitter)

  • "The -0.7% is a sign of deceleration. Some private indicators for July are also not strong" (deceleration concerns). X (formerly Twitter)

• Market and Media: While noting the positive margins by industry (financial intermediation, commerce) and the sharp decline in fishing, they visualized the "discrepancy between strong year-on-year and weak monthly figures." X (formerly Twitter)

6) Looking Ahead: Key Points of Interest

1. Inflation and Wages: If nominal wage growth leads to real improvement, consumption could reaccelerate. Conversely, if the recovery in real wages is sluggish, domestic demand will remain weak.

2. Exchange Rates and Exports: Excessive currency appreciation could lead to a reaction in terms of quantity. The recovery of external demand drivers (agricultural products, automobiles, energy) is key.

3. Financial Conditions: The "side effects" of continued interest rate hikes and the equilibrium point of the economy. While the expansion of financial intermediation is a tailwind, whether it will stimulate real demand is another matter.

4. Consistency in Policy Management: Balancing price stability and growth promotion. The redesign of regulations, subsidies, and tax systems directly impacts investment sentiment.

7) Implications for Investors and Companies

• Externally Linked (export-oriented, high dollar-denominated income ratio) and Domestically Linked (retail, durable goods, construction-related) sectors have diverging winning strategies. Performance differences will widen based on the presence of currency hedges and pricing power.

• In a prolonged economic plateau, managing cost growth suppression and cash flow becomes a priority. Increasing the weight of projects with a short payback period is advisable.

• It is important not to be swayed by macro headlines and to grasp trends with monthly and industry-specific granularity.

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