Drought Hits Argentine Farm Sector, Resulting in Weakest Growth since 2020

A customer counts money before purchasing tangerines, as Argentines struggle amid rising inflation, in Buenos Aires, Argentina May 11, 2023. REUTERS/Agustin Marcarian/File photo

Argentina’s economy experienced a year-on-year growth of 1.3% in the first quarter of 2023, marking the slowest rise since late 2020. The growth was driven by central bank spending to support the peso and boost exports, which offset the negative impact of a severe drought on grain production.

According to a report from the INDEC statistics agency, the country’s farm-driven economy also grew 0.7% compared to the previous quarter. However, unemployment increased from 6.3% to 6.9% during the same period.

Argentina, a major exporter of soy and corn, has been grappling with the economic effects of a devastating drought, which has caused a decline in harvests, drained foreign reserves, and weakened the peso currency. Despite the challenges, the injection of billions of dollars into the market by the central bank has helped sustain demand and mitigate the impact of the drought, stimulating consumer spending amid high inflation rates.

Economists predict that the economy will enter negative territory in the coming quarters as the full impact of the drought is felt and political uncertainty mounts ahead of general elections in October.

“We expect this to be the last quarter of year-on-year growth for a while. In the second quarter, we will see the full impact of the drought, leading to a significant drop,” said Lucio Garay Mendez, an economist at consultancy Eco Go.

 

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