The economic recovery in Argentina, which began with a robust start in early 2025 after years of underperformance, is poised to moderate as the country approaches crucial mid-term legislative elections in October.
The Reuters poll of 28 economists taken between July 21 and 25 also indicates that the rapid pace of the recovery is on track to slow down, as much of the short-lived momentum powered by easing inflation and fiscal consolidation may be fizzling out.
After almost a decade and a half of economic stagnation, Argentina’s economy skyrocketed out of a two-year recession to become the third-largest in Latin America behind Brazil and Mexico.
The “chainsaw” strategy of President Javier Milei’s radical austerities campaign reduced inflation and improved public finances.
However, the price for this has been high, drawing uniform criticism.
Growth will weaken amid market pressures
GDP is expected to expand by 5.0% in 2025, but economists predict a slowdown to 3.4% in 2026.
Although still considered a reasonable pace by historical standards, the anticipated slowdown underscores developing headwinds: a tightening labour market, falling real wages, and increased financial instability are all impacting household consumption and business investment.
Monetary policy remains tight, and credit conditions are deteriorating.
A change to a market-based money supply system, as part of a larger agreement with the International Monetary Fund (IMF) that freed $20 billion in finance, has resulted in high interest rates that continue to limit domestic demand.
The new structure has also increased volatility in local markets, particularly in light of decreasing US dollar inflows from agricultural exports.
Inflation falls, but risks linger
One of Milei’s most remarkable accomplishments has been to reduce inflation, which had risen to 237% in 2024, the highest level since Argentina’s early 1990s hyperinflation.
The poll predicts that inflation would fall to 42% this year and 23% in 2026.
Despite progress, inflationary expectations are still subject to currency fluctuations and political uncertainty.
Analysts point to lacklustre economic activity figures, particularly in May, as evidence that the actual economy is trailing behind macroeconomic stability.
IMF funds, low reserves, and trade pressures
An IMF payout of $2 billion before the October election is likely to provide short-term respite to Argentina’s stressed international reserves.
Nonetheless, structural concerns exist. Due to its high risk premium, the country is still unable to access global debt markets and must rely on alternative funding options such as special bond sales and bank repurchase agreements.
At the same time, Milei’s efforts to liberalise the economy have increased imports, putting more strain on the central bank’s balance sheets.
While energy and mineral exports have increased, they have yet to entirely offset the growing trade deficit.
Political stakes and reform prospects
The political backdrop is critical. Milei’s La Libertad Avanza (LLA) party is currently leading surveys, benefiting from a fractured opposition still riven by internal divisions.
The current house imprisonment of former President Cristina Fernández de Kirchner on corruption accusations has significantly weakened the Peronists’ electoral prospects.
Many in the opposition advocate for a return to previous economic policies based on devaluation, protectionism, and industrial support—an approach that voters strongly rejected in the 2023 presidential election.
Investors are watching to see if Milei’s coalition can win additional legislative seats in October.
A greater legislative presence might help the government to restart delayed reforms, including contentious measures on labour laws, taxes, and pensions.
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