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Argentina—Conventional economic reforms deliver fragile recovery
An economic recovery is underway in Argentina after two years of recession. Official forecasts provide for real GDP to expand 5.5% in 2025 and by an average of 4.3% p.a. in 2026 and 2027, supported by President Milei’s ambitious stabilisation plan, recovery from drought, and increased hydrocarbon production. Inflation has fallen dramatically from an average of 220% in 2024 to a forecast average of 36% in 2025 and 15% in 2026 (Chart), supporting real income gains. Business confidence has improved amid stronger economic performance and conventional economic reform, including removal of most capital controls and Argentina’s first budget surplus since 2008.
Argentina’s 23rd IMF program (US$20 billion over 48 months) was approved in April, with an immediate disbursement of US$12 billion and enhanced reform conditionality that will support macroeconomic stabilisation. Key to the program’s success is maintaining fiscal surpluses and exchange rate flexibility. In April, the authorities replaced the crawling peg with a new exchange rate regime where the peso will float within a gradually expanding band (currently 1,000-1,400 per US$, widening 2% per month). Opportunities for Australian exporters may grow with economic confidence, lifting of exchange controls, removal of import licensing requirements, and an expanding mining sector. Argentina’s existing gold output has benefited from strong prices, and new projects, including for lithium and copper, are being supported by an Incentive Regime for Large Investments that commenced in late 2024.
That said, despite significant improvements in economic fundamentals, the IMF warns that risks remain tilted to the downside. In particular, the risk of debt distress remains high amid global economic uncertainty, still elevated inflation and low foreign exchange reserves. Slower global growth could drag on Argentina’s export demand and undermine efforts to rebuild buffers. Mid-term elections scheduled on 26 October could also test fiscal restraint, though political commitment to lowering inflation appears strong.
