When expansion is not growth

The latest economic data from Argentina paints a picture of a struggling economy, with growth figures declining to 1.7 percent in August, down from 1.2 percent this year. The performance of the Javier Milei administration has been placed squarely in the crosshairs of criticism, but it would be unfair to place the entire blame on any single government.

Economic growth is always contextual, and Argentina's highest growth rate this century was 10.4 percent in 2021, a rebound from the previous pandemic lockdown year. However, the Alberto Fernández government is not seen as economic geniuses, with the transition costs adding to the current downturn. The country is facing a mix of exogenous and endogenous factors, with thousands of jobs lost due to fiscal surplus obsession and technological advancements, particularly in Artificial Intelligence.

The Milei government aims to transform Argentina's growth model from consumer-led to export-led, but this transition is challenging due to high unemployment and deindustrialization. The government's political stance, marked by electoral opportunism and populist nationalism, is seen as self-inflicted damage. The growing entanglements with the Malvinas sovereignty issue could deter foreign business investments, as seen in the case of Haliburton and other global finance entities.

The international front is also facing disruptions, with the United States showing signs of a U-turn on its Malvinas stance due to Labour government's defensive assistance in Yemen. The biggest damage, however, lies in the investor front, as global finance is interconnected, and the fallout from Milei's Malvinas policy could affect numerous banks, investment funds, insurance companies, and shareholders, including Vaca Muerta participants.