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Argentine GDP to Shrink First Time in Decade, Citigroup Says

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July 24 (Bloomberg) -- Argentina’s economy will post its first annual contraction in a decade as tighter capital and import controls contribute to a drop in output and confidence, Citigroup Inc. said.

Gross domestic product will shrink 1.7 percent this year, worse than the bank’s previous forecast for 1 percent growth, New York-based economist Joaquin Cottani wrote in a note to clients. With annual inflation Citigroup estimates at 25 percent, the country is experiencing so-called stagflation, he wrote.

President Cristina Fernandez de Kirchner has stepped up restrictions on dollar purchases and forced some companies to repatriate export revenue since her October re-election in a bid to stem capital outflow. She also restricted imports as she sought to widen a narrowing trade surplus, and seized the country’s biggest oil company from its Spanish parent company.

“The root of the current recession is not international but domestic,” Cottani said.

Fernandez’s policies have worsened the outlook of Argentines and international investors, Cottani said. Consumer confidence fell 25 percent in July from a year earlier, according to a survey released yesterday by Buenos Aires-based Torcuato Di Tella University.

Argentina’s industrial production fell more than 4 percent for a second straight month in June, the biggest two-month decline in a decade, the statistics institute reported on July 20. Economic activity fell 0.5 percent in May from a year earlier, the first year-on-year decline since July 2009, the agency said in a separate report that day.

Cottani said his forecast for an economic contraction this year is different than what he expects the government will report. He predicts the government will say growth was 1.5 percent this year.

To contact the reporter on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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