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Argentine Unemployment Rises

James Boston
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www.finances.com

The Argentine authorities have just announced the final figure for the country’s second quarter unemployment rate. This now stands at 7.5% in comparison to the Q1 reading of 7.1% and a consensus estimate in the region of 7.3%. Although threatening to return towards recent highs of 8% today’s unemployment level in South America’s third largest economy is a far cry from the rates just a decade ago which peaked at over 20%.

Growth forecasts for the Argentine economy have been spiralling downwards over the past two quarters, most recently the Economic Commission for Latin America and the Caribbean (ECLAC) slashed it’s full year GDP outlook from 1.0% to just 0.2%. This however came in advance of the recent ‘selective’ debt repayment default, the impact of which is likely to further hamper Argentine international financial and trade arrangements which will in turn place additional negative pressure on the already lacklustre growth prospects. It is therefore highly likely that Argentina is facing an economic contraction for 2014, with the exception of 2010 this will be the first fall in GDP growth in the country since the major default situation in 2002.

The Argentine recovery since it’s economic collapse just over a decade ago has been very solid. The post crises restructuring has taken public debt down to a manageable 45% of GDP. The problem faced by the authorities in recent times has been one of trying to keep a lid on potentially runaway inflation. This has persistently hovered around the 10% level and has only been kept in check by continual monetary tightening, the Central Bank has raised the base interest rate from a post crises floor of near 0% to today’s level of 22.50%. In this environment it is no surprise that there is an on going battle between the Government, who are attempting to stimulate the economy, and the Central Bank who remain focused on fighting inflation.

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