Milei’s magic fades on Argentina’s slowing economic recovery

President Javier Milei’s efforts to revive Argentina’s economy after decades of decline are losing momentum, adding political headwinds going into next year’s election. 

Economists have cut their growth forecasts for this year to 2.7 percent from 3.5 percent last December. It’s far from the five percent growth his government penciled into its annual budget, though better than the recession Milei inherited when he took office.

Many analysts now see the expansion sputtering, something that would have seemed almost unthinkable after the libertarian leader’s victory in midterm congressional elections last October. Some see the consequences of Milei’s decision not to return to international markets manifesting in slower growth.

“The economy is currently stagnating – from last December to today, the economy hasn’t grown in seasonally adjusted terms,” said Bárbara Guerezta, head of macro and sovereign strategy at Latin Securities Argentina. “The government decided to maintain a much tighter policy stance than we expected by not borrowing abroad, and that was one of the reasons we revised our forecast.” 

Guerezta cut her growth forecast to a range of two percent to 2.5 percent, from three percent to 3.5 percent, echoing a broader shift among economists in Buenos Aires. 

The slowdown complicates the next stage of Milei’s economic experiment. His government’s initial austerity push crushed inflation and helped stabilise the economy that even the International Monetary Fund saw near a full-blown crisis. Those spending cuts worked faster than many expected. The second part – setting the stage for a more robust recovery – is proving harder.

Argentine output likely shrank by 0.4 percent in the second quarter, according to the Central Bank’s most recent survey of economists. That marks downward revision of a full percentage point from the prior survey. So far this year, economic activity has expanded 1.9 percent through June, down from a 6.1 percent pace a year prior, government figures show. 

Economists also point out that the recovery is not only fading but becoming increasingly uneven. Mining, energy and agriculture – powered by the Vaca Muerta shale formation, massive lithium deposits and a strong farm sector – are providing much of the momentum, while manufacturing, construction and commerce are weakening.

“Sales never really stabilised. Sometimes they pick up and then they fall again. It’s a seesaw,” said Miguel Jacobawsky, who owns a plastics packaging maker with 60 employees in Greater Buenos Aires. His plant is operating at less than two-thirds of capacity, while overhead costs keep rising in dollar terms, squeezing margins because he cannot fully pass those increases on to customers. 

Central Bank Governor Santiago Bausili has also acknowledged the loss of momentum. The economy has been growing at around two percent a year since 2024, “much more slowly than we would like,” he said on August 14 at the Mendoza Stock Exchange. He insisted monetary policy will remain tight for the foreseeable future. 

The worsening outlook makes Milei’s re-election bid next year harder despite his signature achievement in reining triple-digit inflation down to about 34 percent today. 

“A solid increase in June activity still failed to compensate for sizeable contractions in the preceding two months, leaving Argentine growth in negative territory in the second quarter and posing downside risk to our 2.7 percent full-year projection,” said Jimena Zuniga, Argentina economist for Bloomberg News.

The question many are now trying to answer is whether voters will place greater weight on his success in taming prices or his difficulties in reviving the economy. Small and medium-sized businesses, or SMEs, are among Argentina’s biggest private-sector employers, and persistent weakness in the sector could cost Milei support next year. 

“If the government doesn’t pay attention to what SMEs are going through, the SME sector won’t support it in 2027,” Jacobawsky said.

Public opinion surveys offer warning signs. An AtlasIntel poll conducted for Bloomberg News in July put Milei’s approval rating at 37.1 percent, near the lowest of his presidency. Torcuato Di Tella University’s government confidence index remains close to the lows of Milei’s mandate, though higher than other recent Argentine presidents at this point in their mandate. 

“If we arrive close to the election with low approval ratings, a weak labor market and sluggish economic activity, that could generate a lot of nervousness in financial markets,” said Todd Martinez, senior director and co-head of Americas sovereigns at Fitch Ratings. 

Including statistical factors like carry-over effects, analysts see growth just about flat this year.  

“Without investment, amid business closures and no formal job creation, the Argentine economy is moving neither backward nor forward,” said Lorenzo Sigaut Gravina, an economist at consulting firm Equilibra, which forecasts just two percent growth this year.