By Taos Turner

BUENOS AIRES -- Argentina's economy showed signs of making a long-awaited comeback in December, expanding 1.6% from the previous month, the national statistics agency said Friday.

The month-on-month growth in gross domestic product is welcome news for Argentine President Mauricio Macri, who promised that his market-friendly policies would rescue the country from recession and create jobs. Mr. Macri took office just over a year ago and immediately began overhauling the economy by slashing taxes and fixing a broken exchange-rate system.

But the moves didn't pay off immediately.

Argentina's economy shrank 2.3% in 2016 from the previous year, the statistics agency said. Output was virtually unchanged on the year in December. Moving forward, though, economists expect economic data to be positive as double-digit inflation and interest rates decline.

Mr. Macri's policies are finally beginning to kick in and spur growth, said Gabriel Zelpo, an analyst at Elypsis, a Buenos Aires economic-research firm.

"What's happening is that the wheat harvest and in part the corn crop performed great this year thanks to the new government's policies, so that's giving the numbers a boost and pushing the economy," Mr. Zelpo said.

Argentina's budget calls for the economy to grow about 3.5% this year and 3% in both 2018 and 2019. Elypsis sees 3% growth this year.

Argentina's automotive industry is also improving, in part because of higher demand from Brazil, which traditionally buys two-thirds or more of Argentina's car exports. In addition, government spending on infrastructure projects including roads and public transportation has been spurring growth.

Still, consumer spending remains weak after a currency devaluation a year ago slashed purchasing power and forced families to cut costs. Consumer confidence fell 8.5% from January and is down 10.8% from a year earlier, according to a study by Torcuato Di Tella University.

"This year you're going to see wages recover," Mr. Zelpo said, referring to a series of raises that unions are expected to obtain for workers this year.

"The central bank is also pursuing a more expansive monetary policy this year and that will also help turn things around for consumption," he said.

Write to Taos Turner at taos.turner@wsj.com

(END) Dow Jones Newswires

February 24, 2017 15:47 ET (20:47 GMT)

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