BUENOS AIRES Argentina's economy slid into recession in the first quarter, piling fresh pressure on President Cristina Fernandez's leftist government to reach a deal with holdout creditors to avoid a new debt default.
Hurt by declines in industrial output and consumer spending, gross domestic product in Latin America's No. 3 economy contracted 0.8 percent after shrinking a downwardly revised 0.5 percent in last quarter of 2013, official data showed on Monday.
The bad news comes as Argentina grapples with one of the world's highest inflation rates, falling central bank reserves and a string of setbacks in its legal fight with creditors who are insisting on full payment of debt that Argentina defaulted on in 2002.
Faced with a possible default on debt payments, Fernandez's government has in the past few days offered to negotiate with the holdouts.
Many economists expect Argentina to post a full-year contraction in 2014, the first since a 2001-02 crisis, when it defaulted on $100 billion of debt. "There's not much reason to think things will get better in the second half of the year unless Argentina positively resolves its legal battle in the United States," said Ignacio Labaqui, analyst for consultancy Medley Global.
"That would lead to an important inflow of dollars, an increase in investment, it would change the perspective for this year a little and would improve the outlook for the coming one," Labaqui added.
The country's statistics agency previously reported that fourth quarter 2013 GDP had contracted 0.4 percent. The quarterly data was not seasonally-adjusted.
Year-on-year, the economy contracted 0.2 percent in the first quarter after growing 1.4 percent at the end of 2013.
SCREECHING TO A HALT
Critics have for years predicted that Fernandez's populist and interventionist policies would push the economy into recession.
The grains powerhouse enjoyed red-hot economic growth of 8.9 percent in 2011, though expansion then slowed to 1.9 percent and 3.0 percent in 2012 and 2013 respectively.
A devaluation of the peso currency and a hike in interest rates in January worsened a new weakness in consumer spending, a pillar of the economy that helped it withstand external shocks like the 2009 financial crisis.
Slower growth in regional powerhouse and key trade partner Brazil has further strained the local economy.
The outlook was gloomier across the board in the first quarter: exports dropped 6.4 percent, imports 3.8 percent and private consumption 1.2 percent.
Compounding the poor growth data, Argentina also announced a widening current account deficit ARCURA=ECI on Monday.
The deficit widened to $3.304 billion in the first quarter from $1.721 billion in the previous quarter.
The current account is the broadest measure of a country's foreign transactions, encompassing trade, services and an array of financial flows, including interest payments.
(Reporting by Buenos Aires newsroom; Writing by Alexandra Ulmer; Editing by James Dalgleish, Kieran Murray and Richard Chang)