Several economies, one future

Argentina’s economy faced a challenging path in 2024, marked by a severe recession, sharp fiscal consolidation and high inflation. The administration of President Javier Milei enacted policies such as a 120% devaluation to correct foreign exchange (FX) distortions, discontinuation of monetary financing and a fiscal adjustment of approximately 5% of GDP. These measures helped narrow the foreign exchange gap and improve international competitiveness, allowing FX reserves to stabilize closer to pre-crisis levels. However, they came at a high cost to economic activity. With poverty rates exceeding 50% as of mid-year, the government implemented targeted social benefits and governance reforms to soften the social impact.

The energy and mining sectors have been prominent drivers of growth, with forecasted GDP contributions of 5.3% in 2025 and 4.9% in 2026. Expanded oil and gas output, particularly from Vaca Muerta, has positioned Argentina as a key global energy exporter. Increased lithium production further bolsters its standing in critical commodity markets, essential for the energy transition. In contrast, the construction and consumer goods sectors continue to face setbacks, hindered by reduced public investment and the erosion of purchasing power. While operating margins for businesses have improved, providing some relief, constrained consumer demand underscores the uneven nature of the recovery.

Monetary policy has focused on reducing inflation, bolstering confidence and restoring the central bank’s credibility. The cessation of monetary financing has curtailed money supply growth, creating a more stable foundation for economic recovery. However, domestic demand remained subdued due to weakened consumer purchasing power, exemplified by a -31% drop in the real minimum wage and declining retail activity. Net exports remained the sole growth driver throughout the majority of 2024 as fiscal austerity limited domestic investment.

Looking ahead, +4.5% GDP growth is expected for 2025, supported by gradual disinflation and improving investor confidence. Average consumer price growth is forecast to lower to 63% and 32% in 2025 and 2026, respectively. Upside risks to our GDP forecast include lower than expected inflation, which would boost real wages and raise purchasing power.

Political stability and external relations will shape Argentina’s broader economic environment in 2025-2026. President Milei’s administration has made significant strides in deregulation and fiscal reform, but its ability to maintain momentum will be tested in the October 2025 midterm elections. La Libertad Avanza’s (LLA) popularity, supported by an improving economy, positions it to gain seats in Congress, but achieving a majority remains unlikely. This political dynamic will influence the pace and extent of reforms.

Internationally, Argentina seeks to strengthen ties with key partners. Relations with the US, especially under a potential second Trump administration, offer opportunities, including securing a new IMF program and increasing policy credibility. However, tensions within Mercosur and China’s strategic influence in Argentina’s infrastructure and agriculture add layers of complexity. Navigating these relationships will require careful diplomacy to balance economic interests and geopolitical pressures.

Domestic political risks include social discontent stemming from high unemployment and inequality. While sectors like mining and energy thrive, urban areas face rising living costs and constrained consumption. Contract frustration risks and policy reversals could deter long-term investment, underscoring the need for consistent governance.

Despite these hurdles, Argentina’s economic outlook remains cautiously optimistic. Strategic reforms, combined with sectoral growth in mining and energy, position the country for recovery. However, sustaining this momentum will require balancing fiscal discipline, social cohesion and political stability.