Red alert for Milei: consumption stays flat as credit fails to bounce back

Argentina's economy experienced a surge in consumption in late 2024 and early 2025, propelled by credit. However, since the beginning of last year, consumption and credit have both stagnated due to volatile interest rates and a surge in household defaults. The government of Javier Milei has not seen any significant improvement in credit or consumption, resulting in an uneven recovery.

The recovery in consumption is now mainly driven by the energy, mining, and farm sectors. Despite a slight recovery in peso lending in June, July's figures show a further decline. Peso loans fell by 1% month-on-month and 1.3% year-on-year. Personal loans dropped by 0.7% month-on-month and 5.4% year-on-year, marking ten consecutive months of real-term decline.

Credit card use also decreased by 3.7% month-on-month and 9.8% year-on-year, with cardholders finding no incentive to take on debt. Lenders have become cautious, tightening their assessment criteria and being selective about approving new credit lines or raising existing limits. This cautious approach has also affected secured loans, which decreased by 1.7% month-on-month in real terms and 6.7% compared to the same month last year.

Household delinquency, though down slightly from 12.8% to 12.7%, remains at record levels. This high default rate is hindering the recovery of consumer credit, as many recent borrowers have been excluded from the financial system due to unpaid debts. However, mortgage lending has bucked the trend, rising for the second month in a row by 2.3% in real terms and 43.7% year-on-year.

This growth is attributed to expectations of falling inflation in the coming months. Nonetheless, the market still faces challenges in accessing new funds to maintain this growth.