(Adds comment, background on economy)
By Luc Cohen
BUENOS AIRES, April 25 (Reuters) - Argentina’s economic activity fell 1.9 percent in February compared with the previous month, the largest month-on-month drop since President Mauricio Macri took office in December 2015, government data showed on Tuesday.
Activity also fell 2.2 percent compared with the same month the previous year, government statistics agency Indec said. The data show that despite exiting recession with two consecutive quarters of modest growth last year, Latin America’s third-largest economy has gotten off to a rough start in 2017.
Macri, the free markets advocate who was elected following more than a decade of heavy government intervention in the economy, wants the recovery to gain enough momentum to boost his allies in key congressional elections in October.
After a 2.3 percent decline in 2016, the government expects 3.5 percent growth this year, driven by a major infrastructure push and growing agricultural output. Economists are less optimistic and expect growth of 2.8 percent, according to a central bank poll.
February’s year-on-year drop was driven by a 7.1 percent decline in manufacturing activity, a 6.7 percent drop in mining activity and a 4.9 percent decrease in wholesale and retail commerce. The agricultural sector grew 1.8 percent while the financial sector grew 1 percent, the data showed.
Inflation spiked in February to 2.5 percent and remained high in March, prompting the central bank to hike interest rates earlier this month. The central bank kept interest rates unchanged at 26.25 percent on Tuesday.
The drop in retail activity was driven by inflation and a government policy introduced in February changing the way retailers sell products in installments. The rollout of the policy, which requires retailers to display the cost of each installment rather than simply advertising “interest-free installments,” was widely seen as confusing to consumers.
“That had a big impact because the change was not well-accepted at first,” said Maria Castiglioni, director of Buenos Aires consultancy C&T Asesores Economicos. “Consumers reacted by putting purchases on hold to see what would happen.”
Castiglioni said indicators that had already been published in March, including construction activity and steel output, suggested activity would improve and grow overall for the first quarter. In January, activity grew 1.4 percent year-on-year and fell 0.4 percent compared with December, Indec data show.
“March will compensate a lot for February,” she said, noting that inclement weather and the loss of a workday on the calendar contributed to underperformance in sectors such as construction. (Reporting by Luc Cohen; Editing by Sandra Maler)