MercoPress. South Atlantic News Agency

Argentine economy contracts 0.2% in first quarter; 2013 growth down to 2.9%

Under the old stats system the Argentine economy in 2013 expanded 4.5%

Argentina's economy contracted during the first quarter of the year as high inflation and weak exports to top trade partner Brazil took a toll. During the first three months of the year, GDP fell by 0.2% on the year and contracted 0.8% on the quarter, the national statistics agency Indec reported Monday.

 Argentina sharply lowered its growth estimates for last year after overhauling the way the government measures inflation and economic growth, in part to satisfy IMF demands that Argentina improve its statistics.

In effect the new index based on the economic census from 2004, shows that the economy last year expanded 2.9%, well below the 4.5% under the old 1993 measuring system.

The second largest economy in South America is struggling in the face of weakness in neighboring Brazil and tighter monetary policy as the government attempts to tackle soaring inflation and pressure on the exchange rate after years of sharply increasing monetary supply to help with a soaring budget deficit.

In February, the central bank started issuing notes with interest rates close to 30%. That helped to ease some of the inflationary pressure and depreciation of the peso but has also hit consumption hard as interest rates for credit cards and loans soared.

The central bank has lowered those interest rates a couple of percentage points in recent weeks and moved to cap consumer credit financing costs, but soaring prices have still hit spending.

The government said the consumer-price index was up 1.4% on the month in May, while a report released by opposition congressmen taking the average of private forecasts reported a 2.28% rise. Private forecasters estimated an annual inflation rate of 39.9% in May, one of the highest in the world.

Other data from Indec shows that the balance of payments closed the first quarter of the year with a deficit of 3.304 billion dollars. Likewise foreign public debt stood at 137.8bn dollars at the end of March, down from 139bn a year ago.

Central bank international reserves at the end of March totaled 28.87bn dollars, while the trade surplus in the first quarter was 805 million dollars.