Argentina

Economy to lose some growth momentum in 2026

In 2026, GDP growth rate will decelerate somewhat, notably on back of a base effect. Gross fixed investments should be the main growth driver of activity during the year, albeit at a slower pace. The resounding victory of the ruling party in the October 2025 midterm elections has contributed to a more stable economic and political environment and will facilitate more upbeat market sentiment in 2026, which bodes well for investments. Private investment should be driven by domestic companies, while foreign groups are likely to continue taking a watchful approach and grow to a lesser extent. External interest is likely to be mainly focused on mining, and the oil and gas sector in the Vaca Muerta shale field. Moreover, bullish sentiment increase if policymakers succeed in passing structural reforms, such as enhancing market flexibility and simplifying the tax system. More flexible credit conditions are expected and should also support investment. In 2026, interest rates are projected to decline and stabilise at lower levels, aided by reduced bank reserve requirements and continued progress in anchoring inflation expectations. Likewise, household consumption is expected to keep expanding—albeit at a slower pace—driven by lower inflation, modest real income gains and easier credit conditions. As for public consumption (15% of GDP), it will continue to be subject to strict fiscal discipline. However, after two years of contraction, public spending is expected to rise slightly in 2026.

Exports should expand at slightly higher pace. While global growth momentum will continue to gradually fade (including in the main export markets Brazil, the US and China), foreign sales will likely be boosted by an expected strong 2025-2026 agricultural season, rising energy and lithium exports and potentially higher shipments to the US, supported by the latter’s relatively stronger growth, and the recent reciprocal trade and investment framework between Argentina and the US announced in November 2025. While La Niña may occur at the beginning of the year, it is projected to be mild and short-lived. In Argentina, this phenomenon typically results in reduced rainfall. Downside risks primarily hinge on the current exchange rate regime and on policymakers’ capacity to rebuild depleted foreign reserves.

Broadly stable external shortfall and fiscal consolidation to remain on track

In 2026, the current account is expected to remain broadly stable (posting a slight deficit), though with its main components observing different trends. The primary income deficit should widen as foreign companies are allowed to repatriate dividends following the lifting of controls. However, the service deficit will narrow somewhat owing to a lower travel account shortfall, assuming a relatively more depreciated average real effective exchange rate in 2026, allowing for some recovery of competitiveness of local versus international tourism. Similarly, the trade surplus should also improve marginally as export growth outpaces the increase in imports. On the financing side, FDI should increase with the relative improvement in business environment. However, a wait-and-see approach is likely to continue to drag on FDI for as long as the current exchange rate scheme persists and foreign currency reserves are depleted. In November 2025, gross reserves stood at around USD 40 billion, but net reserves (which subtracts USD deposit reserve requirements, swap lines with China, other liabilities and IMF disbursements) came to a negative USD 9 billion. A reassessment of the current exchange rate fluctuation framework is required, but authorities are currently unwilling to make adjustments and are keeping their focus on maintaining disinflation. In April 2025, an exchange rate fluctuation band of ARS 1,000–1,400 per USD was set that widened the monthly limit by 1%. Initially effective, pressure rose from late June on back of seasonal dollar demand, reduced export inflows, missed reserve targets (with an IMF waiver), the proximity of midterm elections and political scandals. In July, policy shifted to target monetary aggregates, making interest rates endogenous. Rates spiked but failed to ease exchange rate pressure. Additional measures such as higher bank reserve, and temporary export tax cuts also failed to address the problem. US support announced in late September helped prevent further currency pressure. In October 2025, the two countries signed a USD 20 billion currency swap line. Moreover, the US Treasury intervened in Argentina’s FX market by purchasing pesos equivalent to USD 2 billion in October 2025. Although pressure on the exchange rate has eased slightly with US support and the ruling party's victory in the midterm elections, the peso continues to trade near the upper limit of the band. The market is not convinced of the sustainability of the current scheme and considers the currency to be overvalued. The multilateral real exchange rate was still 14% higher than its historical average at the end of October 2025. Allowing it to trade more freely would boost foreign exchange reserves, which remains a critical sore point for the economy: building up reserves is a priority in order to meet IMF program requirements and cover foreign currency debt payments in 2026. Failure to meet this goal could leave the government exposed to another crisis of confidence.

On the fiscal front, authorities will remain committed to keeping the primary surplus – a 2026 budget estimate of 1.5% of GDP – sufficient to pay debt interest, and, consequently, balance the budget, to avoid monetary financing of the fiscal deficit by the central bank, which was the primary cause of inflation in recent years until 2024. This will contribute to the continued decline of the debt-to-GDP ratio. Public spending is expected to rise slightly, driven by a partial real recovery of repressed pensions—which account for roughly 46% of total expenditure—and increased transfers to provinces, a concession Javier Milei is likely to offer to secure the endorsement of his policy agenda. However, the impact on public finances should be offset by higher revenues, supported by economic expansion, favourable harvest prospects, and rising oil and gas and mining activities. Regarding 2026’s financial obligations (amortisation plus interest payments), the government faces foreign currency payments of USD 15 billion or roughly 2.3% of GDP (including USD 4.1 billion to the IMF). Additionally, it faces roughly 16% of GDP in local currency debt service payments, which underscores the importance of keeping a zero deficit and being able to roll over the debt. That said, the compression of risk premia following the midterms has allowed corporates and quasi-sovereigns to tap external debt markets. On 5 December 2025, the government announced it was staging a comeback to the international capital markets and planned to raise debt via a Eurobond auction on 12 December. The bond, which matures on 30 November 2029, carries a nominal annual coupon of 6.50% and is Argentina’s first issuance of this kind since 2018.

Milei’s landslide victory in the midterm elections increases the likelihood of passing structural reforms

On 26 October 2025, Argentines voted in the midterm elections, renewing nearly half of the Lower House (127 out of 257 seats) and one-third of the Senate (24 out of 72 seats). Despite political and economic challenges, and a weak result during the Buenos Aires provincial elections in September 2025 (home to roughly 38% of the population), the ruling right-wing La Libertad Avanza (LLA) secured a surprise landslide victory, winning 40.7% of the valid votes, compared to 30.7% for the opposition Peronist bloc. The victory can be attributed to several factors including strategic voting driven by fears of renewed economic turmoil under a different outcome, and strong rejection of the “Kirchnerismo” at country level amid concerns about its possible resurgence. Moreover, the LLA’s victory was compounded by recent support from the US government, which may have indirectly influenced the outcome by helping prevent a larger currency run in the weeks leading up to the election. However, after a steep 21% cumulative drop in Milei’s popularity during August and September 2025, his approval rebounded in October and November, rising by 27% to 49%. The new Congress took office on 10 December 2025, with the LLA boosting its numbers in the Lower House (it now holds 95 seats, up from 37) and in the Senate (20 seats, from 7 previously). Importantly, after having garnered over one-third of the seats in the Lower House, Milei is now able to maintain his power of veto in Congress. However, no political party holds a majority in either chamber of Congress, meaning the government will still need to form alliances to pass reforms. The Peronist opposition remains the largest minority in the Senate (28 seats) and holds 93 seats in the Lower House. In this context, Milei used a more conciliatory tone in his victory speech. Governance will depend on Milei’s ability to manage support from PRO and the Provincias Unidas coalition—a group of moderate provincial governors that could serve as a political bridge, seeking consensus without compromising fiscal discipline. In any case, after Milei’s resounding victory, moderate politicians will be much more willing to negotiate with him and reach agreements. Alliances are key to paving the way to pass structural reforms to attract more investments. In this sense, after the midterms, Milei met with most governors (20 out of 24) to seek consensus on his reform agenda. Moreover, Diego Santilli, recently elected a member of parliament for the Buenos Aires Province and the newly appointed Interior Minister from the PRO party, outlined the agenda for Congress’s extraordinary sessions in December 2025. The agenda includes the 2026 Budget proposal, a labour modernisation bill, tax reforms and a new Penal Code—signalling the government’s determination to push forward major policy changes swiftly. On tax reform, a key priority is to simplify Argentina’s complex tax system, potentially using measures to reduce or eliminate certain levies to boost productivity. Regarding labour reform, President Milei aims to amend existing laws to give employers greater flexibility—streamlining hiring and firing processes, extending legal working hours and allowing vacation periods to be split. The government also plans to weaken the power of the very strong union structures, with more decentralised wage negotiations (based more on the productivity and profitability of each company) and the end of compulsory union contributions for non-member workers. While tax simplification appears achievable, securing support for labour reforms will be more challenging and are to be tweaked during congressional negotiations. One proposal involves transferring jurisdiction over labour disputes from federal to local courts, a move critics argue could weaken worker protection laws and favour employer-friendly rulings due to limited technical expertise at the local level.

Externally, Argentina´s strengthened diplomatic relations with the US are likely to continue, notably after the ruling party’s strong performance in midterms. Milei has aligned policy to virtually mirror that of the US amid the current escalation of tensions with Venezuela and Colombia. Milei joined the coalition supporting US manoeuvres in the Caribbean, labelling the Cártel de los Soles and Maduro’s inner circle as a terrorist and narcocriminal organisation. In November 2025, the US and Argentina announced a framework to promote reciprocal trade and investment. The agreement aims to boost bilateral commerce, open new investment channels, and align regulatory standards for goods and services. Key points include preferential market access for US products in machinery, pharmaceuticals and agriculture, while the US will eliminate tariffs on selected Argentine minerals and pharmaceutical inputs. It also addresses non-tariff barriers, intellectual property reforms and digital trade. That said, as part of the Mercosur — comprising also Brazil, Bolivia, Paraguay, and Uruguay – Argentina has also pursued opportunities to expand into new markets. In September 2025, the bloc signed a free trade agreement with the European Free Trade Association (EFTA), which includes Switzerland, Norway, Iceland and Liechtenstein. The agreement is currently awaiting ratification by all participating countries. Additionally, also in September, Mercosur resumed negotiations with Canada after a break of nearly four years. Last, after negotiations lasting 25 years, Mercosur and the European Union (EU) announced in December 2024 the signing of a free trade agreement to eliminate tariffs on most goods. This came five years after an initial deal had been stalled, notably due to EU environmental concerns regarding deforestation in Mercosur countries. The major changes to the 2019 text involve the commitment to adhere to the Paris Climate Change Agreement (with possible suspension of benefits in the event of a breach, amendments to public procurement, auto trading and critical minerals exports). However, the agreement still needs to be passed by the parliaments of Mercosur member countries and, on the European side, the Council of the European Union and the European Parliament. In the European Council, at least 55% of the countries must agree, and these must account for at least 65% of the bloc's total population. Objections have mainly been raised by France, but may also come from other countries. Nonetheless, in November 2025, French President Emmanuel Macron stated he was “quite positive” about the possibility of accepting the trade agreement, though he emphasised that France would remain “vigilant” about protecting its national interests. He said the European Commission had acknowledged the French government’s concerns by including safeguard clauses and committing to provide additional support to the livestock sector. The Commission also pledged to strengthen protections for the internal European market through improvements to the Customs union. President Macron added that the European Commission would work with Mercosur to ensure that these clauses are effectively incorporated into the final agreement.

Last updated: December 2025