By Luc Cohen
BUENOS AIRES (Reuters) - Argentina's economy shrank in the third quarter, remaining in recession as inflation ate into consumer purchasing power and weak activity in top trading partner Brazil hurt manufacturing, government data showed on Thursday.
Economic activity fell 0.2 percent in the July-to-September period, marking the fourth straight quarter of contraction. Compared with the same period in 2015, the economy shrank 3.8 percent, the second straight quarter of year-on-year declines, government statistics agency INDEC said.
Growth has been elusive during the first year of center-right President Mauricio Macri's administration. Since taking office last December, ending more than a decade of leftist rule, Macri has implemented free-market measures to revive the economy and attract foreign investment.
Earlier this year, Finance Minister Alfonso Prat-Gay said the economy would likely grow in the third quarter. But investments have been slow to arrive and inflation reaching 40 percent this year has hurt domestic consumption.
Cumulatively, the economy fell 2.4 percent during the first three quarters of the year compared with the same period last year.
"This confirms that the recovery has been delayed longer than we expected," said Alejo Costa, chief strategist at Buenos Aires-based brokerage Puente.
The government expects the economy will expand 3.5 percent next year, though private economists' forecasts are lower at a median of 3.0 percent.
The quarter-on-quarter contraction was less severe than the previous three quarters, boosted by higher public works spending and a more expansionary monetary policy from the central bank, Costa said.
He added that November data showed signs that a rebound was beginning, with public works boosting construction activity, increasing demand for materials like steel and cement. Government data on November economic activity is expected next week.
Macri is counting on public works spending to drive growth next year ahead of legislative elections in October to prevent his "Let's Change" coalition, which lacks a majority, from losing ground in Congress.
The public sector grew 1.2 percent in the third quarter, while social services and health care grew 2.4 percent.
The country's key agriculture sector fell 2.8 percent in the third quarter compared with the same period last year, while manufacturing activity fell by 8 percent. Construction fell 12.9 percent year-over-year.
INDEC revised its GDP figures for the first and second quarters to contractions of 0.8 percent and 1.9 percent, respectively, compared with 0.5 percent and 2.1 percent previously.
(Reporting by Luc Cohen and Buenos Aires newsroom; Editing by Andrew Hay and Diane Craft)