Milei’s Presidency at risk from stalling Argentina economy

A year out from President Javier Milei’s re-election bid, the economic recovery that underpinned his popularity is stalling.

Gross domestic product shrank 0.6 percent in the second quarter from the previous three months, the first contraction in two years and a setback for a government counting on stronger growth ahead of the October 2027 election. 

Argentines elected the libertarian outsider in 2023 hoping austerity and freer markets could tame inflation and stabilise the crisis-prone economy. Milei’s “shock therapy” succeeded in sharply slowing price increases, but polls show voters are increasingly concerned about the weak jobs market. 

Output rose two percent from a year earlier, supported by booming exports of energy and agricultural products, while imports fell. In a post on X, Economy Minister Luis Caputo boasted that 13 of 16 sectors grew in the first half of the year.    

Even so, the latest GDP figures are “not nearly compelling enough to dispel political concerns – the key variable weighing on Argentina’s markets,” said Jimena Zuniga, an Argentina economist at Bloomberg Economics. 

Investors in the nation’s sovereign debt worry that weakening support for Milei’s programme could increase the chances of a reversal of his fiscal and market reforms after the 2027 election. 

Milei’s leftist opponents are seeking to turn rising unemployment and weak household incomes into the central issues of the October 2027 election. 

Bleak outlook

Fernando Marull, partner at consulting firm FM&A, sees a possible second consecutive contraction in the third quarter, which would technically put Argentina in a recession.  

Even if the economy escapes a recession, the outlook for households is still bleak, said Carlos Melconian, director of MacroView SA.

“Whether or not you get two negative quarters, it’s going to be extremely close,” Melconian said. “The components people actually feel are already getting crushed.”

Annual inflation slowed to 34 percent last month, from more than 200 percent when Milei took office. An AtlasIntel poll last month found that corruption and unemployment have overtaken inflation among voters’ top concerns. 

Milei, however, remains focused on consolidating his victory over inflation, which he wants to push below a monthly rate of one percent. 

That’s led him to back a strong peso policy, even though it’s weighing on growth. The currency weakened just 3.7 percent against the US dollar in the year through August, while consumer prices rose 21 percent.

That real appreciation has been bolstered in recent weeks by official intervention in bond and futures markets, while currency controls on companies remain in place. 

Milei’s opponents are increasingly focused on this point. At an event earlier this month, the clearest contender, Buenos Aires Governor Axel Kicillof, called the government’s approach a “criminal, suicidal policy of deindustrialising the country.” 

Opposition lawmakers have also taken the argument to Congress, recently forcing a session on rising household indebtedness and loan delinquencies, though none of the proposals for relief have moved forward yet.

Milei tells a different story, pointing to strong growth in agriculture, energy and mining as evidence of an economy that has turned the corner. 

At the same time, retail, construction and manufacturing, which employ far more people, are shedding jobs, while defaults on consumer loans are soaring.

Consumption contracted 2.4 percent in the second quarter as sluggish wage growth and tight credit hit household finances. 

Those struggling sectors account for roughly half of Argentina’s registered private salaried employment, while the industries powering exports and investment account for only about a fifth. 

Overall, registered private salaried employment has shrunk by about 246,300 jobs since just before Milei took office, while the number of companies has fallen by more than 30,000.

That leaves Milei vulnerable heading into the election. His approval stood at 38 percent in the latest AtlasIntel survey, with 58 percent disapproving and 70 percent describing the job market as bad.

The government this week lowered its 2026 growth forecast to three percent from five percent, while economists surveyed by the Central Bank expect something closer to two percent.  

Osvaldo Giordano, president of the IERAL economic institute at Fundación Mediterránea, expects the economy to dodge recession, with output approximately flat this quarter. But the gap between meagre growth and what Argentines expect after enduring years of economic turmoil is a risk for Milei, he said. 

“A society’s tolerance is not the same when you have a single bad year,” Giordano said. “Here, it’s a succession of very bad years. So patience is lower.”