Argentina’s Economy Contracts for First Time Since 2012

Argentina’s economy contracted for the first time since September 2012, surprising analysts after the government devalued the peso and raised interest rates.

Economic activity, a proxy for gross domestic product, fell 0.9 percent in March from a year earlier, Argentina’s statistics agency said in a statement today. The median estimate in a Bloomberg survey of nine economists was for growth of 0.8 percent. Economic activity fell 0.9 percent from February.

Argentina’s economy is slowing as the government implements policies to stem a drain on the country’s foreign reserves, which are hovering near a seven-year low. Vehicle sales fell 40 percent in March from a year earlier after President Cristina Fernandez de Kirchner’s government devalued the peso by 19 percent in January and Brazil’s economy showed signs of slowing.

“The devaluation ended up complicating economic activity that already showed signs of difficulties,” Belen Olaiz, an analyst at Buenos Aires-based research company, said in a telephone interview. “Private consumption was the biggest driver of growth in the past 11 years, and this year it’s becoming one of the main drags.”

Industries such as electronics and construction have been affected as the government reduced imports to preserve dollars, Olaiz said. expects the economy to contract 1.5 percent in the first quarter from a year earlier and by the same amount in 2014, she said.

Central bank reserves have fallen 28 percent in the past year to $28.4 billion. Imports in March fell 4 percent from a year earlier even as consumer prices have risen an accumulated 11.5 percent in the first four months of the year.

Construction activity contracted 4.2 percent in March from the same period a year earlier.

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