Economic Downturn in Argentina: President Milei’s Plan Fails to Reduce Inflation as Businesses Face Hard Times

Argentina’s economy contracted by 3.2% in February compared to the previous year, despite President Javier Milei’s economic shock therapy plan aiming for a 6% decrease. However, the data released on Tuesday showed a smaller monthly decline of 0.2% in activity. In the fourth quarter of 2023, Argentina’s economy contracted by 1.9%.

Since assuming office in December, Milei has implemented measures such as lifting price controls, freezing public works, and devaluing the currency to reduce inflation from a three-decade high of 26% in December. He also allowed public wages and pensions to fall behind rising consumer prices, hoping to reduce costs further.

Despite Milei touting the country’s first quarterly fiscal surplus since 2008 in a televised address on Monday night, economists are more cautious about its sustainability due to its impact on economic activity. Construction activity decreased by 24.6% annually in February, while spending at small- and medium-size businesses fell by 12.6% in March – which is the largest sector of employment in Argentina.

According to economists surveyed by Argentina’s central bank, they anticipate a 3.5% contraction in gross domestic product for the year, despite Milei’s optimism about reducing inflation through his austerity measures. Concerns about the economic impact of these measures remain high among experts as construction activity continues to decline and business spending remains weakened