Argentina exited recession as Milei eyes growth before midterms

Argentina emerged from a brutal recession in the third quarter, boosting the odds that President Javier Milei heads into next year’s mid-term elections with growth on the rebound alongside cooling inflation.

Gross domestic product expanded 3.9 percent from July to September compared to the previous three-month period, better than analysts’ expectations for 3.4 percent growth. From a year ago, South America’s second-largest economy shrank 2.1 percent in the third quarter, according to government data published Monday. The median estimate of economists surveyed by Bloomberg was for a contraction of 2.6 percent.

Capital expenditure, consumer spending and exports drove growth in the quarter, while public investment barely rebounded. 

Milei’s balancing act between growing Argentina’s economy and cooling inflation while lifting currency controls will be keenly watched by markets as a barometer of his popularity heading into the mid-terms in late 2025 where he’s looking to take seats away from traditional parties. 

Argentines endured a recession for three previous quarters that saw more than half the country mired in poverty as inflation wiped out wages and the labour market lost hundreds of thousands of jobs. Milei’s strict austerity exacerbated the decline in activity as his government slashed spending across the board, particularly on public works, a major employer. 

Signs of recovery are underway heading into 2025. Beyond the third-quarter growth, wages have surpassed inflation since April, job growth is slowly picking up and private estimates indicated poverty is gradually declining after spiking once Milei took office. Argentines also deposited over US$20 billion in the financial system this year as part of Milei’s tax amnesty programme, a robust sign of confidence in the libertarian president.  

Longer term, Milei’s business-friendly reforms are starting to attract foreign investment commitments, particularly in the energy sector. Still, significant investment from abroad isn’t expected until Milei lifts the currency and capital controls he inherited from the previous government, something he committed to ending next year.  

Economists surveyed by Argentina’s Central Bank anticipate the economy will contract three percent for all of 2024 and grow 4.2 percent next year.