Argentina

President Milei’s administration has delivered notable progress in Argentina, including a smooth rollout of a new FX regime, bringing down monthly inflation to 2.8% in April, fiscal surpluses reaching 0.6% of GDP, a rebound in economic activity and real wages and poverty reduction. Real GDP is expected to grow +5.5% in 2025 and +4.5% in 2026. This corresponds to a deviation of around +1.7pps from our forecast, which is more cautious in the short-term, given the mixed effects of current trade tensions, the early recovery that materialized already in the second half of 2024 (the IMF itself had predicted a much sharper contraction of up to -4.5%) and a post-election adjustment. Inflation is forecast to drop from 118% at end-2024 to between 18-23% by end-2025, reaching single digits by 2027. Our forecast for average inflation is currently set at 35-40% and 20-18% for 2025 and 2026, respectively.

Argentina’s economy faced a challenging path in 2024, marked by a second consecutive year of negative GDP growth (-1.7% after -1.6% in 2023), sharp fiscal consolidation and 220% average inflation. The administration enacted policies such as a 120% devaluation to correct foreign exchange 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. However, they came at a high cost to economic activity. Net exports remained the sole growth driver throughout the majority of 2024 as fiscal austerity limited domestic investment. With poverty rates exceeding 50% as of mid-2024, the government implemented targeted social benefits and governance reforms to soften the social impact. Finally, the IMF approved a new four-year, USD20bn Extended Fund Facility for Argentina in April 2025, with an initial USD12bn disbursement to support ongoing stabilization and reform efforts. Argentina established a managed floating exchange rate system for the peso, which is now allowed to trade within a band that is set to expand on both ends, providing a controlled environment for currency fluctuation. This policy shift marks a departure from the previous tightly managed crawling peg system. The Central Bank of Argentina is committed to intervening as necessary to maintain the peso within this band, ensuring orderly market conditions – provided that foreign reserves remain capable to do so.

The IMF agreement also includes objectives such as rebuilding net foreign reserves by USD4bn by the end of the year and achieving a primary fiscal surplus of 1.3% of GDP, with a potential target of 1.6%. Long-term goals include strengthening external buffers and regaining access to international capital markets. The government has also committed to enhancing financial transparency, aligning Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) standards with global norms and deregulating the economy to boost formalization.

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 continues be tested. La Libertad Avanza’s (LLA) popularity, supported by an improving economy, positions it to gain seats in Congress, but achieving a majority remains pivotal to influence decisively the next phase.

Internationally, Argentina seeks to strengthen ties with key partners. Relations with the US may offer opportunities, considering the collaboration with the IMF and the need to convince investors to put money on long-term initiatives. However, tensions with the Mercosur bloc, limited complementarity with US trade, China’s strategic influence in Argentina’s infrastructure and agriculture and increasing import dependence (particularly from China) add layers of complexity and risk penalizing some industries.

Domestic political risks include social discontent stemming from working poor segments, increased polarization of policy agendas and enduring inequality. While sectors like mining and energy thrive, urban areas face rising living costs and constrained consumption. Contract frustration risks are reducing, but sudden policy reversals could still 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.