Argentina’s economy posts slight growth ahead of midterm vote

Argentina’s economy posted a slight monthly expansion in August despite a liquidity crunch in a win for President Javier Milei ahead of a critical midterm election this weekend.

Economic activity grew 0.3 percent from July after three straight monthly contractions. From last August, the economy expanded 2.4 percent, just above the 2.3 percent median estimate of economists, according to government statistics published Wednesday.

Argentina’s economy had been slowing since the third quarter of last year before shrinking 0.1 percent in the three months through June. In July, the Central Bank stopped rolling over its short-term notes called LEFIs, sparking a liquidity crunch that only worsened as the September 7 Buenos Aires Province vote neared.

The Central Bank’s push to contain resulting pressure on the peso left banks and brokers short of the local currency and drove short-term rates into the triple digits, adding to the drag on South America’s second-biggest economy.

After Milei’s party was handed a landslide loss in Buenos Aires Province, traders continued to bet against the peso, prompting US Secretary Scott Bessent to step in with a US$20-billion lifeline. Volatility remains high ahead of the much bigger October 26 midterm vote, where Argentines are set to renew half of the lower house Chamber of Deputies and a third of the Senate.

Investors are left to ponder a host of questions – such as whether Milei’s pro-market reforms will have staying power and if the government can avoid a currency devaluation. 

The economic team has said it expects monetary policy to normalise after the vote, and it does not expect any changes to its currency policy.

In a reprieve for Argentines, the country’s poverty declined to its lowest since 2018 and unemployment fell in the second quarter.

Argentina is expected to have 30 percent inflation and grow 3.9 percent in 2025, according to the latest Central Bank survey of economists.