The economy contracted -0.34% q/q in Q2, after -0.04% in Q1. Private consumption stagnated after dropping for four straight quarters, while investment grew for the first time since Q4 2017 (+1.5% q/q). Compared to Q2 2018, the economy contracted -1.8% y/y, giving signs of bottoming out – the pace of contraction slowed from the -4.9% recession average. But recent financial turmoil, heightened political risk and the announcement of a restructuring should plunge Argentina back into recession in Q3, spilling over to 2020. After moderating in July, economic sentiment dropped to its lowest ever recorded by our proprietary NowRisk indicator (since 2011) in August. Indeed, companies should prepare for a sharp tightening of financial conditions, which should pass-through to the real economy, just like in 2018, via the currency channel (imported inflation and highly restrictive monetary policy hurting consumer spending and investment) and the business sentiment channel (hurting investment as well).
