Argentina's economy posts first quarterly contraction since 2024

Argentina's economy shrank in the second quarter for the first time in two years, underscoring challenges for President Javier Milei's administration. GDP declined 0.6 percent from the previous quarter, slightly better than the median forecast of a 0.9 percent drop. Year-over-year, the economy grew 2 percent, according to government data.

Exports and a decline in imports were the only bright spots in the quarter, while government spending, consumer spending, and capital formation all contracted. Unemployment rose to 7.9 percent during the same period, according to Argentine polls. Milei's policies to curb inflation and reduce deficits have likely contributed to the slowdown.

The government has maintained a tight control on the peso, allowing it to appreciate against inflation while opening the economy to more global trade. Economists expect modest growth in the coming quarters, but it may not be enough to give Milei a strong re-election campaign. The country's most labor-intensive sectors, such as manufacturing, retail, and construction, have been hit hard by a stronger exchange rate and increased global competition, leading to job losses.

Meanwhile, energy, mining, and agriculture, which are less labor-intensive, are setting export records but employ fewer people. The government recently lowered its 2026 GDP forecast to 3 percent growth from 5 percent previously. Economists now project annual growth for the year to be 2.1 percent, down from a December forecast of 3.5 percent, according to the Central Bank's monthly surveys.

So far in the third quarter, construction and manufacturing have both seen sharp declines, and tax collection in August remained flat when adjusted for inflation, suggesting a lack of improvement in the economic outlook.