March 21, 2019 / 7:21 PM / 5 months ago

UPDATE 2-Argentina's leaders face growth conundrum after 2018 contraction

* FY 2018 GDP -2.5 pct vs 2017 - stats office

* Q4 drops 6.2 pct, weakest quarter since 2009

* Argentine leaders struggling to revive growth

* Unemployment rate flat at around 9 pct (Adds unemployment numbers, analyst comment)

By Jorge Iorio and Walter Bianchi

BUENOS AIRES, March 21 (Reuters) - Argentina’s economy shrunk 2.5 percent in 2018, the official statistics agency said on Thursday, as the Latin American country’s leaders struggle to revive growth after being rattled by a currency crisis and steep inflation over the past year.

The economy also contracted 6.2 percent in the fourth quarter of the year, in line with analyst forecasts, the weakest quarterly performance since 2009. That followed a 3.5 percent dip in the quarter before.

Reviving growth will be key for President Mauricio Macri ahead of a re-election battle in October, but the centre-right leader has little left in his arsenal to bolster the economy as he firefights stubborn inflation and fears over the peso.

Argentina has pledged tighter monetary policy to rein in inflation and raised interest rates to a sky-high 65.758 percent to help defend the local currency, measures likely to dampen growth in the near-term as firms struggle to raise cash.

“Tight monetary policy is an impediment to growth in the short-term but benefits outweigh the costs,” said Ilya Gofshteyn, New York-based senior emerging markets strategist at Standard Chartered Bank.

Argentina is in “dire straits on the growth front and it’s not going to turn around overnight,” Gofshteyn said, adding growth dynamics should improve in the back half of the year.

Macri’s government has pledged for now to rein in spending and cut government debt levels as part of a $56.3 billion financing deal agreed with the International Monetary Fund last year, giving him less room for economic stimulus.

Macri said last year the country had been battered by “endless storms”, which pulled the country into recession, drove steep inflation and saw the local peso currency lose around half its value against the dollar.

The country’s unemployment rate, however, held steady at 9.1 percent in the fourth quarter, compared with 9 percent in the previous period, government data showed on Thursday. Jobs have been protected by generous local labor laws.

Reporting by Jorge Iorio and Walter Bianchi; Writing by Adam Jourdan Editing by David Gregorio and Sandra Maler

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