Argentina’s economy is growing beyond expectations

Insights from the Financial Times, the Economics Observatory, and Reuters

The News

Argentina’s economy has surged for the first time since wildcard President Javier Milei took office. Economic activity in the country was up 1.3% from April, Bloomberg reported, well above analyst estimates. Recorded inflation was at 4.6% in June, down from 25.5% at the end of 2023.

Argentina has the worst projected economic growth of any major economy this year, The International Monetary Fund noted, but the country is projected to rebound in 2025.

Milei was elected on pledges to turn around Argentina’s economic woes, and has enacted harsh spending cuts in an attempt to rein in inflation.

SIGNALS

Milei has pulled away from more radical measures

Milei, a self-described “anarcho-capitalist,” had promised to adopt the US dollar as one measure to curb Argentina’s inflationary pressures — but that plan was quickly shelved. Since taking office, Milei has moved away from some of the more radical measures he suggested on the campaign trail, sources told the Financial Times. “It’s as if he suddenly shed his costume,” one diplomat said. But analysts believe that voters could run out of patience if Milei doesn’t deliver on his economic promises: “His support is very ephemeral and very volatile,” the head of a left-leaning think tank told the FT. “Voters made a bet on him but that bet has an expiry date.”

Poverty rate is climbing

The country’s economic prospects may be turning around, but poverty in the nation is high, Reuters reported. Argentines are battling the rapid devaluation of their currency, and triple-digit inflation. Protest movements against Milei’s suggested spending cuts have grown in recent months, as locals who cannot afford to feed their families reject the pull back of government programs. “The social safety net is weakening,” a poverty researcher told Reuters. “We’re in a difficult moment in terms of food security and the process of chronic impoverishment in Argentina.”

Economic turnaround will come at ‘substantial’ cost

Overspending on public services and money creation have fueled Argentina’s financial crisis for decades, the Economics Observatory noted. The country has defaulted on its debt on nine separate occasions, and its inflation rate averaged 190% between 1944 and 2023. Per capita income, meanwhile, has dropped more than 10% on average. “Milei’s strategy so far has yielded several promising initial results,” the think tank noted. “But while these measures have steered these indicators in the right direction, they have also imposed a substantial economic and social cost.”