Stagflation is becoming entrenched in Argentina’s economy

By Sober Look

Further evidence of Argentina’s crashing economy is now directly visible in the nation’s GDP contraction.

Reuters: – Argentina’s economy contracted in May while industrial production slumped further in June, data showed on Friday, the weakest performance for both readings since a global crisis shriveled growth in 2009.

Economic activity fell 0.5 percent in May year-on-year, slowing from April’s 0.6 percent growth rate and marking the first contraction in 34 months, government data showed on Friday.

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Latin America’s No. 3 economy is decelerating sharply after posting China-like growth rates for much of the past nine years. High inflation, a sluggish global economy, waning demand from neighboring Brazil, falling grains production as well as new trade and currency controls have prompted the slowdown.

This Reuters article is being too kind. Argentine government’s arrogant and irresponsible policies are directly adding to this severe decline.

And a full blown stagflation is now setting in Argentina.

GS: – Real activity data continues to deteriorate (real GDP declined 0.5% yoy in May and industrial production retrenched 4.7% yoy in June). The economy is likely to have contracted during 2Q2012 due chiefly to the deleterious effect of binding FX controls and severe import repression measures which hurt sentiment, investment, and production chains.

Stagflation arrived with a vengeance—Argentina has now the weakest economy and the highest inflation in the hemisphere (24% yoy according to the average of eight private sector consultants).

Stagflation is in fact showing up in the nation’s property markets. Home sales and construction decline, yet property prices remain high (in peso terms) and new homes are not accessible to the middle class. Fears of "pesoization" are prompting speculative investments in properties, making home purchases difficult for most people with peso incomes.

Press TV: – Official figures show home sales in Argentina dropped 15 to 20 percent across the country in the first five months of 2012 compared to the same period last year, reports.

Building permits also fell by 75 percent in the capital city of Buenos Aires, according to official figures.