Argentina’s economy expanded at a lower rate in the fourth quarter than in the previous quarter due to a slackening in the manufacturing sector and weaker consumer sentiment.

The gross domestic product (GDP) growth rate was down to 7.3 percent year-on-year in the fourth quarter from 9.3 percent in the third quarter, according to data from the national statistics agency.

In 2011, the economy expanded 8.9 percent, down from 9.2 percent in 2010.

Most of the slowdown was explained by a fall in the pace of private consumption and fixed capital formation, says Capital Economics. This was partially offset by a slight pick-up in government spending and a sizeable improvement in the trade balance, due to a drop in imports. The production data seem to paint a similar picture, with a weaker performance in commerce and manufacturing dragging on overall growth.

Public investment probably slowed considerably after October’s election, while rising inflation and a range of tariff hikes undoubtedly squeezed household incomes in late 2011, points out Capital Economics.

Argentina’s medium-term growth prospects remain bearish, according to Capital Economics. The current economic model, based on stimulating current consumption at the expense of savings and investment, is reaching its limits. Rampant inflation has created a distorted and increasingly uncompetitive economic environment.

The central bank's latest forecast for 2012 is that the rate of GDP growth will be at 6 percent, though not many economists are very optimistic about this.

Argentina needs to tighten its lax fiscal and monetary policy. So far the government has not shown any inclination towards this.

Controls on the trade and capital accounts have had a contraction effect on the economy. Capital Economics has forecast that rate of GDP growth will slip to 2.5 percent year-on-year in 2012.

Argentina Gdp Manufacturing Trade balance