Argentina recession deepens as economy shrinks more than expected

BUENOS AIRES (Reuters) -Argentina's economy shrank 1.7% in the second quarter of the year compared to the previous three-month period, the country's statistics agency said on Wednesday, pushing the embattled South American nation deeper into recession.

Argentina's gross domestic product also dipped 1.7% year-on-year, landing below analyst forecasts of a 1.4% contraction against the year-ago period.

This marks the South American economy's fifth straight annualized quarterly contraction and third quarter-on-quarter decline.

Argentina's key farming sector led growth, shooting up 81.2% year-on-year, while fishing was up 41.3%. However, construction tumbled 22.2%, manufacturing fell 17.4% and retail activity slid 15.7%, statistics agency INDEC said.

Consumption and private investment also continued to slump, INDEC noted, though Argentina reduced its imports and grew its exports. Financial services, real estate and hotels and restaurants also saw activity shrink.

Argentina entered a technical recession - two straight periods of quarter-on-quarter GDP contraction - in the first quarter of this year. It ended 2023 with a 1.6% contraction.

The government of libertarian President Javier Milei, who took office in December, has pushed a tough austerity drive that has battered economic activity and pushed up poverty and unemployment.

The government says the cost-cutting measures are needed to rein in the world's highest inflation that is hovering above 250%, rebuild its foreign reserves and reverse years of deep fiscal deficits.

While monthly inflation has hovered around the same level since May, Milei's government on Sunday presented a 2025 draft budget, in which it predicted inflation just above 18% next year, with GDP growing 5% next year and a further 5% in 2026.

Argentine markets cheered Milei's plan for a "zero" deficit budget but were down slightly on Wednesday ahead of the U.S. Federal Reserve's announcement it would cut interest rates by 50 basis points.

(Reporting by Sarah Morland and Hernan Nessi; Editing by Brendan O'Boyle and Lisa Shumaker)