Market considers economy in recession as it curtails 2026 growth prospects

Recent market assessments indicate that Argentina's economy may contract more than initially anticipated in 2026, with several analysts suggesting the nation is already experiencing a recession. This conclusion is drawn from the September Market Expectations Survey (REM), a monthly poll conducted by the Central Bank. The survey compiles forecasts from over 40 participants, including local and international consulting firms, research centers, and financial institutions, concerning key economic indicators.

The REM projected a decline in economic expectations for the third quarter and the remainder of the year, highlighting a potential deterioration in economic prospects. Inflation and unemployment rates are also anticipated to rise. One key variable, the U.S. dollar-peso exchange rate, is expected to remain unchanged. The survey estimated a 1% contraction in seasonally adjusted gross domestic product (GDP) for the third quarter, marking a 2.1 percentage point drop from the 1.1% growth projected in the previous month.

A 0.6% contraction in the second quarter further indicates the lack of growth in the third quarter would classify the economy in a "technical recession." However, some recovery is expected in the final quarter, with growth projected at 1.8%, a 0.5 percentage point increase from the previous survey (+1.3%). Despite this optimism, the forecast for the rest of the year has been revised downward.

The August REM previously projected an 2.1% year-on-year growth in 2026, which has now been reduced to 1.5%. The decline in growth is attributed to poor performance in real economy sectors like industry, commerce, and construction, which are not being offset by the export boom in minerals, energy, and agriculture. Manufacturing, in particular, has been significantly affected, with a 1.9% rise in August month-on-month, though this is insufficient to recover from the previous month's drop of 5% seasonally adjusted.

Compared to December 2025, manufacturing is down 1.6% and more than 7% since President Javier Milei's arrival. Unemployment and inflation expectations have also worsened. Analysts estimate unemployment will reach 7.5% in the third quarter, with a further increase to 7.7% in the fourth quarter. Inflation is forecasted to reach 1.9% in September, peaking at 30% for the year, up from 27.7% in August projections.

The only positive indicator is the expected improvement in the exchange rate, with October projected to end at AR$1,545 per U.S. dollar, approximately AR$20 lower than the previous survey. December is expected to see a rate of AR$1,614, marking an 11.5% increase year-on-year.