BUENOS AIRES: Argentina entered a recession in the first quarter (1Q) of the year as President Javier Milei’s brutal spending cuts sent consumption and activity plummeting.

Gross domestic product (GDP) fell 2.6% compared to the fourth quarter of 2023, according to official government data.

Activity contracted 5.1% from a year earlier, slightly less than the median estimate for a 5.3% decline among economists surveyed by Bloomberg. The negative print follows a 2.5% quarterly contraction in the three months through December.

The first months of the year were marked by sharp cuts to real pensions and public sector wages and a halt in public infrastructure projects.

When he took office in December, Milei also devalued the peso by more than 50% and stripped hundreds of price controls. Real wages fell 17% from November to March, triggering a 10% drop in supermarket sales over the same period.

Construction, manufacturing and retail sectors led the declines, offset by agriculture and mining, according to the government. Capital spending, a proxy for investment, fell 23.4% from a year prior, while retail sales fell 8.7%.

Unemployment rose to 7.7% from 5.7% in the previous quarter, according to another set of government data.

The painful contraction in activity has nonetheless seen the government post five consecutive monthly budget surpluses and a faster-than-expected easing of monthly inflation, from 25.5% in December to 4.2% in May.

 - Bloomberg