BUENOS AIRES--Argentina's once fast-growing economy hit a wall in the second quarter, as government policies and weak exports to Brazil weighed on activity.
Gross domestic product--a broad measure of all the goods and services produced in an economy--was unchanged from a year ago, and contracted 0.8% from the first quarter of 2012, the national statistics agency, known as Indec, said Friday.
After expanding 8.9% last year and 9.2% in 2010, the Argentine economy will likely struggle to meet the government's latest forecast of 3.4% growth this year.
Argentine factories have been hurt by slack demand for their goods in Brazil, whose ailing economy is also suffering from lackluster growth, while a drought in the farm belt trimmed agriculture exports this year.
On the home front, President Cristina Kirchner's policies are widely believed to have dented growth. After winning re-election last October with 54% of the vote, Mrs. Kirchner's administration has aggressively blocked imports and severely rationed the foreign currency individuals and businesses can legally purchase.
The president and her ministers have said the measures are necessary to preserve the central bank's international reserves so industry can import capital goods and the government can pay its debts.
Mrs. Kirchner's 2013 budget calls for using $9.97 billion in reserves to pay creditors, after using $18.1 billion for that purpose since early 2010.
Whatever the reasons, the controls have added to the economy's woes as companies can't obtain authorization or the U.S. dollars they need to import equipment and materials.
However, the measures have fulfilled the administration's goal of trimming both capital flight and Argentina's import bill.
The central bank's reserves have stabilized just north of $45 billion in recent weeks after the government paid $2.2 billion in dollar bonds in early August.
The South American nation posted a bigger-than-expected current account surplus of $1.71 billion in the second quarter thanks in large part to trade barriers and government efforts to dissuade companies from sending profits abroad.
Recent economic data would suggest the economy has started to recover. Domestic car sales are still growing and automobile production posted month-on-month gains above 20% in July and August.
Argentina will likely also benefit from what analysts say will be a record soybean crop next year, most of which will be exported in the form of beans and related products like soyoil and soymeal.
"We expect activity to have touched bottom during (the second quarter) and to firm gradually throughout (the second half) on the back of added fiscal and monetary policy stimulus and the expected recovery of activity in Brazil," Goldman Sachs economist Alberto Ramos said in a note.
Mrs. Kirchner has also launched a number of stimulus measures to support the economy, including tariff protection for local producers, a state mortgage program and lending requirements for banks.
The 59-year-old president is expected to ramp up spending next year as her ruling Peronist Party and its allies face a critical test in midterm congressional elections.
A strong showing could give her enough congressional sway to change the constitution and seek a third term in 2015, as some of her supporters have called for. Indeed, her 2013 budget puts heavy emphasis on fiscal stimulus.
But the public and investors are unlikely to ever know with certainty just how severe this year's downturn was, nor how buoyant a recovery will be in 2013.
Argentina's official economic data have been viewed with skepticism since early 2007, when then-President Nestor Kirchner replaced long-serving Indec staff with political appointees.
Most economists say Indec significantly understates inflation, which reduces the government's payments on inflation- linked bonds and produces unrealistic estimates for GDP growth.
Indec's consumer price index put 12-month inflation at 10% in August, while a survey of a dozen economists published by opposition members of Congress produced an average estimate of 24.3% annual inflation that month.
Earlier this month, the International Monetary Fund gave Argentina until mid-December to improve the quality of its inflation and GDP data.
The IMF started using estimates from the private sector and provincial government to measure that data last year.
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Gross domestic product--a broad measure of all the goods and services produced in an economy--was unchanged from a year ago, and contracted 0.8% from the first quarter of 2012, the national statistics agency, known as Indec, said Friday.
After expanding 8.9% last year and 9.2% in 2010, the Argentine economy will likely struggle to meet the government's latest forecast of 3.4% growth this year.
Argentine factories have been hurt by slack demand for their goods in Brazil, whose ailing economy is also suffering from lackluster growth, while a drought in the farm belt trimmed agriculture exports this year.
On the home front, President Cristina Kirchner's policies are widely believed to have dented growth. After winning re-election last October with 54% of the vote, Mrs. Kirchner's administration has aggressively blocked imports and severely rationed the foreign currency individuals and businesses can legally purchase.
The president and her ministers have said the measures are necessary to preserve the central bank's international reserves so industry can import capital goods and the government can pay its debts.
Mrs. Kirchner's 2013 budget calls for using $9.97 billion in reserves to pay creditors, after using $18.1 billion for that purpose since early 2010.
Whatever the reasons, the controls have added to the economy's woes as companies can't obtain authorization or the U.S. dollars they need to import equipment and materials.
However, the measures have fulfilled the administration's goal of trimming both capital flight and Argentina's import bill.
The central bank's reserves have stabilized just north of $45 billion in recent weeks after the government paid $2.2 billion in dollar bonds in early August.
The South American nation posted a bigger-than-expected current account surplus of $1.71 billion in the second quarter thanks in large part to trade barriers and government efforts to dissuade companies from sending profits abroad.
Recent economic data would suggest the economy has started to recover. Domestic car sales are still growing and automobile production posted month-on-month gains above 20% in July and August.
Argentina will likely also benefit from what analysts say will be a record soybean crop next year, most of which will be exported in the form of beans and related products like soyoil and soymeal.
"We expect activity to have touched bottom during (the second quarter) and to firm gradually throughout (the second half) on the back of added fiscal and monetary policy stimulus and the expected recovery of activity in Brazil," Goldman Sachs economist Alberto Ramos said in a note.
Mrs. Kirchner has also launched a number of stimulus measures to support the economy, including tariff protection for local producers, a state mortgage program and lending requirements for banks.
The 59-year-old president is expected to ramp up spending next year as her ruling Peronist Party and its allies face a critical test in midterm congressional elections.
A strong showing could give her enough congressional sway to change the constitution and seek a third term in 2015, as some of her supporters have called for. Indeed, her 2013 budget puts heavy emphasis on fiscal stimulus.
But the public and investors are unlikely to ever know with certainty just how severe this year's downturn was, nor how buoyant a recovery will be in 2013.
Argentina's official economic data have been viewed with skepticism since early 2007, when then-President Nestor Kirchner replaced long-serving Indec staff with political appointees.
Most economists say Indec significantly understates inflation, which reduces the government's payments on inflation- linked bonds and produces unrealistic estimates for GDP growth.
Indec's consumer price index put 12-month inflation at 10% in August, while a survey of a dozen economists published by opposition members of Congress produced an average estimate of 24.3% annual inflation that month.
Earlier this month, the International Monetary Fund gave Argentina until mid-December to improve the quality of its inflation and GDP data.
The IMF started using estimates from the private sector and provincial government to measure that data last year.
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