June 18 (Bloomberg) -- Argentina’s economy, the second- largest in South America, expanded at its slowest pace since 2002 in the first quarter on a decline in agriculture and construction.

Gross domestic product rose 2 percent from a year earlier and 0.1 percent from the fourth quarter of 2008, the National Statistics Institute reported today in Buenos Aires. Farm output fell 14.1 percent from the first quarter of 2008 while construction fell 3.5 percent.

“We have had a slowing economy since last year, when farmers began a protest against a tax increase, and then the global crisis hit our exports,” said Camilo Tiscornia, an economist at Castiglione, Tiscornia & Asociados research in Buenos Aires.

President Cristina Fernandez de Kirchner last year announced an 111 billion peso ($29.5 billion) stimulus package to fuel consumer spending and to try to mitigate the effects of the world financial crisis. Since Congress approved the nationalization of about $24 billion in pension funds in November, Fernandez has used those funds to offer low-cost mortgages and spur construction. She also announced plans to encourage purchases of goods ranging from washing machines to cars.

Slowing Growth

Argentina’s economy has expanded at least 6.8 percent annually since 2003 afer a four-year recession as the country abandoned a one-to-one peso exchange rate with the dollar that made Argentine goods cheaper abroad and helped domestic industries.

The government’s 2009 budget forecasts the economy will expand 4 percent. The statistics agency today revised its growth tally for last year to 6.8 percent from 7 percent as announced in March.

Growth may rebound in the third and fourth quarters as commodity prices recover, said Castiglione, who projects a 4 percent contraction this year.

Carola Sandy, an economist at Credit Suisse Group AG in New York, said Argentina’s economy may expand 3 percent next year, led by a rebound in agricultural output and prices, and stronger global demand.

The Buenos Aires Cereals Exchange yesterday lowered its forecasts for wheat planting and corn output this year because the country has suffered the worst drought in 70 years.

“Even if next year’s grain and cereal harvest is average, it would still be 35-40 percent larger relative to this year’s yield,” Sandy wrote in a report today. “Higher export revenues would not only fill the fiscal coffers but they would also help fuel growth in various sectors of the economy,” she said, citing real estate, manufacturing, and automobile sales.

To contact the reporters on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net; Silvia Martinez in Buenos Aires at smartinez19@bloomberg.net.

Last Updated: June 18, 2009 17:28 EDT