(Recasts, adds month-on-month economic activity data, macro-economic context, analyst quotes)
By Hugh Bronstein
BUENOS AIRES, Nov 24 (Reuters) - Argentina’s economic activity shrank 3.7 percent in September versus a year earlier, according to official data released on Thursday, the seventh straight month of contraction despite government promises of an investment-driven recovery.
Since taking office a year ago, President Mauricio Macri has implemented open-market reforms following years of heavy-handed currency and trade controls that had chased investors out of Latin America’s No. 3 economy under the previous administration.
He promised to attract bricks-and-mortar investment in the second half of 2016. But companies are not rushing in to build businesses and the economy is headed for a 2 percent contraction this year with household purchasing power hobbled by 39.4 percent inflation, according to private estimates.
Thursday’s government report also showed September economic activity in September fell 0.8 percent versus August.
“The costs associated with the departure from the exhausted economic model of the previous government have been higher than what the Macri administration and most private analysts had anticipated,” said Ignacio Labaqui, an analyst with Medley Global Advisors.
Thursday’s data was released by the Indec statistics agency a day after Argentine business leaders, responding to labor union demands for job security, agreed not to lay off workers without justifiable cause until March 2017.
Previous President Cristina Fernandez was widely accused of ordering Indec to manipulate data to make the economy look better than it was during her eight years of populist rule. The reform of Indec was a top priority of Macri during his first months in office.
Indec’s first unemployment numbers under Macri showed a 9.3 percent jobless rate in the second quarter of 2016. Third-quarter labor market data is expected on Friday.
With the recession hanging on longer than expected, tens of thousands of protesters marched in Buenos Aires last Friday to pressure the government into increasing subsidies to the poor.
Macri needs the economy to turn around well before October 2017 mid-term elections that will determine his ability to get the rest of his market-friendly program through Congress and mount a viable 2019 re-election campaign.
“Each month that the recession does not end takes away probabilities of Macri doing well in the 2017 election,” said Alberto Bernal, market strategist at U.S.-based XP Securities.
“This administration needs some luck. It needs Brazil (Argentina’s chief trading partner) to turn around soon and it needs China to continue performing better than expectations,” he said.
Reporting by Hugh Bronstein; Editing by Marguerita Choy and Alan Crosby