Argentina economy forecast to extend recession in second quarter

By Hernan Nessi

BUENOS AIRES (Reuters) - Argentina's economy likely shrank 1.4% in the second quarter versus a year earlier, a Reuters poll showed on Monday, the fifth such decline as a recession deepens under a tough austerity drive by libertarian President Javier Milei.

That median GDP estimate from 15 analysts polled by Reuters for the April-June period would follow a 5.1% year-over-year contraction in the first quarter. The official data is released on Wednesday.

Milei's cost-cutting has hurt economic activity and pushed up poverty and unemployment. The government says it is necessary to rein in triple-digit inflation, rebuild reserves and reverse years of deep fiscal deficits.

The South American country entered a technical recession - two straight periods of quarter-on-quarter GDP contraction - in the first quarter of the year.

"We are still in recession, but there are some signs that it may be coming to an end," said analyst Marcelo Rojas, referring to signals the country's economic slump may have bottomed out.

"GDP has a lot of room to grow, but new capital will be needed to generate momentum."

Argentina has seen some industries rebound faster than others, with the key farming sector performing strongly, along with oil and gas from the massive Vaca Muerta shale region. Construction and consumption remain weak.

"The agricultural sector, energy and mining show solid recovery rates. In contrast, construction, financial intermediation and trade show significant declines," said Pablo Besmedrisnik, economist at consultancy VDC.

He added that wages had gained ground against inflation in the second quarter, and that with monthly price rises slowing, Argentines' purchasing power could keep improving, boosting consumption in the second half of the year.

Monthly inflation has come down from 25% in December to around 4% in recent months. Annualized inflation remains above 250%, the highest in the world, though the government aims to lower this sharply by the end of the year.

The Q2 year-on-year GDP forecasts from analysts ranged from a decline of 1.4%, the most common estimate, to a 3.7% drop. The average estimate was for a 1.8% contraction.

Milei's government presented its 2025 budget on Sunday, which included a target for 5% GDP growth next year.

(Reporting by Hernan Nessi; Writing by Brendan O'Boyle; Editing by Cynthia Osterman)