President Javier Milei’s efforts to revive Argentina’s economy are losing momentum, with economists cutting their 2026 growth forecasts to 2.7 percent, down from the 3.5 percent projected last December. Bloomberg reported Tuesday that the slowdown is adding political headwinds going into next year’s election, where Milei needs a strong showing to bolster his slim minority in Congress. The revised figure is far below the 5 percent growth his government penciled into the annual budget, though still better than the recession Milei inherited when he took office in December 2023.
The deceleration marks a sharp reversal from the optimism that surrounded Milei’s first year in office, when inflation collapsed from 211 percent to roughly 33 percent and GDP rebounded 4.4 percent. Analysts now describe a two-speed economy: resource sectors like agriculture and energy continue to boom, while manufacturing and retail contract. The EMAE monthly activity indicator hit an all-time high in January 2026, but agriculture surged 25 percent while manufacturing fell 2.6 percent and retail dropped 3.2 percent.
Inflation Stall and Reserve Pressure
Monthly inflation has ticked up to 2.9 percent, the highest since September 2024, frustrating expectations that the disinflation process would continue its downward trajectory. The government’s target of 10 percent annual inflation for 2026 looks increasingly unreachable. Citi and Barclays estimate that the Iran war and Strait of Hormuz disruptions have added 0.8 to 0.9 percentage points of additional annual inflation through higher global oil prices.
Argentina’s central bank has been burning through reserves to defend the peso within its trading band. Monetary officials spent more than US$1 billion in a single week to keep the currency stable as part of the country’s deal with the International Monetary Fund. Total reserves stand at roughly US$49 billion, double their 2023 level, but the pace of depletion has raised concerns about sustainability. The peso regime shifted from a rigid crawling peg to a wider band in April 2026 as part of the IMF’s US$20 billion Extended Fund Facility.
Political Fallout
The economic cooling is feeding into opposition gains. Peronism’s unexpected landslide victory in Buenos Aires province last year sent shockwaves through markets, with the exchange rate and country risk index soaring the following day. Governor Axel Kicillof has called on the Partido Justicialista to organize and channel public discontent ahead of the midterm elections.
Country risk has fallen from roughly 2,000 basis points at the start of Milei’s administration to around 570, but 570 basis points is still roughly five times the spread on Brazilian or Mexican sovereign debt, analysts noted.
Fitch upgraded Argentina’s sovereign credit rating from CCC+ to B- in 2025, but B- remains in highly speculative territory. The wide dispersion in full-year 2026 inflation forecasts, with the IMF projecting 16.4 percent, JPMorgan estimating 26 percent, and the OECD forecasting close to 30 percent, indicates deep disagreement among credible analysts on whether disinflation still has momentum.
Vaca Muerta Bright Spot
Energy remains the brightest part of the picture. Vaca Muerta shale oil and gas production set records at 861,000 barrels per day, generating a US$7.8 billion energy trade surplus in 2025, with expectations of US$14 billion or more this year. An LNG export deal with Germany has become binding, and Argentina is positioned to become a significant energy exporter if the infrastructure keeps pace.
But the economy’s structural weaknesses persist. Poverty, while down from 41.7 percent in 2023 to 28.2 percent, remains deeply embedded. Real wages fell sharply during the initial stabilisation shock and have only partially recovered, creating sustained pressure for above-inflation wage settlements that feed back into service-sector prices. The government reduced its spending freeze from 23.7 billion to 17.9 billion reais, adding fiscal uncertainty to an already complex landscape.
The most honest assessment of Milei’s programme is that it has achieved something genuinely impressive, stabilizing an economy many analysts believed headed for hyperinflation, without yet proving the improvement is durable. Argentina’s history is littered with decisive economic breaks that proved temporary, and bond markets already price in the risk that reforms reverse after the next election.
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