Argentina economy loses pace while exports carry demand

Argentina economy output fell 0.6% in the second quarter, the first contraction since 2024 and a setback for President Javier Milei.

Government figures published Thursday showed gross domestic product declined in April-June from the previous three months, while annual output still rose 2% from a year earlier. The quarterly drop was smaller than the 0.9% contraction expected in the analyst survey cited in the source material.

The split matters for Milei because the annual number still reflects a recovery from earlier weakness, while the quarterly reading points to a loss of momentum. It also lands as his administration asks Congress to consider a 2026 budget built around slower growth than previously projected.

Exports carry the quarter

Exports were the only demand component that added to quarterly growth, according to the government data. Imports pulled back, which can lift net trade in the national accounts but may also signal softer domestic demand when businesses and consumers buy fewer foreign goods.

The rest of the economy moved the other way. Government spending, household consumption and capital formation all declined from the first quarter, showing that the weakness was not confined to one narrow category.

That combination gives the second-quarter report a mixed character. Argentina sold more abroad, but the internal drivers that usually support employment and investment were weaker than in the prior period.

Milei’s disinflation trade-off

The contraction follows Milei’s effort to reduce inflation and close chronic fiscal deficits through tighter public spending and a more disciplined currency framework. The administration has kept a firm grip on the peso, which has appreciated after adjusting for inflation, while reducing barriers in an economy long shaped by protectionist policy.

Those settings can help stabilize prices and improve external credibility if they hold. They can also expose domestic companies to cheaper imports and a less favorable exchange-rate position, especially in sectors that rely on local demand.

Manufacturing, retail and construction have been hit by the stronger exchange rate and increased global competition, according to the source material. Those industries are also among Argentina’s largest employers, so a slowdown there carries a larger labor-market cost than weakness in smaller sectors.

Jobless rate adds pressure

The unemployment rate rose to 7.9% in the same quarter, up from the prior period cited in the source material but not accompanied by a specific earlier rate. Joblessness ranked as Argentines’ top economic concern in an August survey by AtlasIntel.

The labor-market detail is central to the political economy of Milei’s program. Energy, mining and agriculture have been the stronger parts of Argentina’s export story, but they employ fewer workers than manufacturing, stores and building trades.

That mismatch helps explain why aggregate growth can look better than household conditions. Export records in capital-intensive sectors do not immediately replace jobs lost in labor-heavy urban industries.

Budget cuts growth view

The government lowered its 2026 GDP forecast to 3% growth from 5% in the annual budget proposal sent to Congress on Tuesday. Economists in the central bank’s monthly survey were more cautious, projecting 2.1% growth for this year, down from a 3.5% forecast last December.

The main policy question is whether lower inflation and fiscal restraint can start lifting investment before job losses erode public support. If exports keep expanding while imports remain subdued, net trade could cushion GDP, but the company-level effect would be uneven: exporters in energy, mining and farming would benefit more than retailers, builders and factories.

If domestic demand instead stays weak, Argentina’s macro picture could shift toward slower growth despite fiscal progress. For Milei’s government, that would make the 2026 budget harder to sell; for industry, it would deepen the split between globally competitive producers and employers tied to local consumers.