Executive summary

Argentina is entering a new phase of macroeconomic stabilization and gradual normalization after a year of intense fiscal and monetary adjustment. The government’s strategy—anchored in fiscal discipline, monetary contraction, and a managed exchange rate regime—is starting to deliver results. While short-term challenges persist, recent policy actions have laid the foundation for a more sustainable growth path.

The fiscal anchor remains central to the economic plan. In Q1 2025, the government posted a primary surplus of 0.5% of GDP—slightly below the same period in 2024, but well above 2023 levels. With a 1.3% target agreed with the IMF, authorities aim to overperform and reach 1.6%, signaling continued commitment to consolidation.

Disinflation has become more challenging than initially expected. After a steep decline in late 2024, inflation has stabilized around 2.5% m/m on average, reflecting both persistent price inertia—particularly in services—and growing volatility in the exchange rate. While the disinflation process is still progressing and headline inflation is expected to continue falling, the pace has slowed notably. The government’s FX strategy, centered on maintaining the exchange rate at the lower bound of a pre-announced band, has helped contain expectations but may be contributing to short-term pressures on competitiveness and price dynamics.

Growth is resuming after a brief but deep recession in 2024. Real GDP is expected to expand by 5.1% in 2025, led by agriculture, energy, and mining. While consumption and urban sectors are lagging, investment is driving the recovery. 

The FX regime was overhauled in April 2025. A wide exchange rate band (ARS 1,000–1,400/USD) replaced the crawling peg, and capital controls were eased. The government has committed to intervening only at the floor of the band, creating a policy trade-off between disinflation, reserve accumulation, and competitiveness. Achieving the USD 9 billion IMF reserve target for 2025—USD 5 billion due by June—remains a key challenge.

Legislative elections will be decisive. The October 2025 legislative midterms will determine whether President Javier Milei can secure broader congressional support for a deeper reform agenda. Public support remains relatively strong but has declined from its peak, reflecting social fatigue with the adjustment process.

Structural reforms continue under the new IMF program. Key milestones for 2025 include tax and pension reform proposals, privatization frameworks, and improved governance standards. Long-term success will depend on maintaining macroeconomic anchors, securing political support, and attracting sustained investment — particularly in high-potential sectors like energy, agriculture, and mining.

1. Executive Brief overview of Argentina's current economic and political environment

In early 2025, Argentina is transitioning from acute macroeconomic stabilization to a more delicate phase of policy consolidation. After the sharp fiscal and monetary adjustments of 2024, the country has entered a stage marked by slowing inflation, recovering activity, and relative financial calm. Yet this balance remains fragile, particularly regarding the external position, the real equilibrium exchange rate, and the economy’s capacity to boost productivity, exports, and long-term growth.

President Javier Milei’s administration has achieved significant early successes. Inflation has decelerated markedly, and reserves have stabilized—though they remain negative on a net basis—amid real exchange rate appreciation. Markets initially responded favorably: sovereign spreads narrowed and bond prices recovered through early 2025, although that momentum later slowed due to global uncertainty and questions surrounding the new FX regime. These gains have come at virtually no cost to the President’s approval ratings—a rare occurrence—but the October midterm elections remain the critical test that both markets and the government see as key to validating the direction, expectations, timing, and reform agenda.

The turning point in Q2 2025 was the announcement of a new technical agreement with the IMF, which provided renewed external validation of Argentina’s economic program. The Fund endorsed the macroeconomic framework and backed the government’s strategy to gradually normalize the foreign exchange regime and lift capital controls—steps that are essential to rebuilding credibility and securing external financing.

As part of this process, the government introduced a new FX settlement scheme featuring a wide exchange rate band and a commitment to keep the peso money supply fixed within those bands. In addition, the preferential FX rate for exporters was eliminated, as were restrictions on foreign currency purchases and holdings by individuals. These measures mark the beginning of a gradual, rules-based liberalization of the capital account.

The current macro strategy rests on three pillars: fiscal surplus, monetary contraction, and a controlled flexible exchange rate. While these anchors have delivered initial results, the path ahead is complex. The economy remains vulnerable to external shocks, the real exchange rate is increasingly misaligned, and the government lacks a legislative majority—constraining its ability to advance deeper structural reforms ahead of the October elections.

Still, Argentina’s long-term fundamentals remain attractive. With world-class natural resources, vast energy potential, and strong human capital, the country stands to benefit from sustained macroeconomic normalization and institutional strengthening. For now, the priority is navigating the trade-offs between short-term stability and long-term competitiveness—under the close watch of investors, the IMF, and domestic political dynamics.

2. Macroeconomic Overview

1. GDP Growth: Recent trends, forecasts, and key drivers.

Argentina's economy is emerging from a brief but intense recession. After bottoming out between December 2023 and April 2024, monthly economic activity indicators began to recover steadily. By November 2024, economic activity had returned to year-ago levels, signaling the recession was shallower and shorter than anticipated. The rebound has been uneven led by agriculture and mining, while consumption and urban sectors remain subdued.

The agricultural sector, bolstered by a strong 2024 harvest, was the main driver of growth. Energy and mining also maintained positive momentum, supported by rising exports and sustained investment in Vaca Muerta. In contrast, construction, retail, and manufacturing remain under pressure from low real wages and tight credit conditions. However, forward indicators suggest the economy will resume annual growth in Q2 2025.

GDP is expected to grow by approximately 5% in 2025, helped by carry-over effects from late 2024 and early sectoral improvements. Yet, long-term stagnation persists: Argentina’s per capita income remains below 2017 levels, and productivity has not recovered since 2011. The challenge ahead is to shift from cyclical recovery to sustained growth through structural reform and investment.

2. Inflation: Current rates and expectations

Inflation fell sharply over Q1 2025, confirming that the government’s fiscal and monetary anchors have been effective in breaking high inflation dynamics. After peaking above 25% m/m in December 2023, monthly inflation dropped to 2.4% in February. However, the path has become more uneven: in March, inflation temporarily accelerated to 3.7% amid exchange rate uncertainty, and is now averaging around 2.5% m/m in Q2. On a trailing three-month annualized basis, inflation has fallen below 45%, signaling a material improvement from 2024.

This progress stems from decisive fiscal consolidation, the end of Central Bank financing, a frozen monetary base, and a temporarily stable exchange rate regime. Gradual adjustments in regulated prices have also helped manage expectations. Still, the next stage of disinflation will be more difficult. Core inflation remains sticky in services, and real exchange rate appreciation—amplified by capital inflows and carry trade dynamics—poses new challenges for competitiveness.

The government has prioritized exchange rate predictability to reinforce disinflation, committing to intervene only at the lower bound of the FX band. While this strategy has helped reduce volatility, it limits flexibility and raises questions about how sustainable inflation convergence will be. The official goal is to align inflation with regional peers by end-2026. Reaching this target will require policy consistency, real exchange rate management, and resilience to external and domestic shocks.

3. Currency Exchange Rates and International Reserves: Recent movements, central bank interventions. 

In April 2025, the Argentine government introduced a new foreign exchange framework, marking a significant shift toward gradual liberalization of capital controls. This new system aims to provide greater flexibility for market participants while preserving macroeconomic stability and supporting disinflation.

At the center of the reform is a managed floating exchange rate regime operating within a predefined band—initially set between ARS 1,000 and ARS 1,400 per dollar, adjusted monthly by ±1%. This replaces the previous crawling peg and eliminates the “dólar blend” scheme for exporters. Alongside this change, capital controls were eased for individuals: the USD 200 monthly purchase cap was removed, and most tax surcharges on FX purchases were lifted (except for tourism-related transactions).

Following the implementation, the official exchange rate has been fluctuating between the center and the lower bound of the band—without reaching the floor—driven by high real interest rates and renewed carry trade dynamics. This movement has been accompanied by some volatility, reflecting shifting market expectations and seasonal FX flows. The system has so far remained stable, but as the exchange rate nears the floor of the band, risks may emerge: reduced export incentives, higher imports and tourism outflows, stronger demand for dollar savings, and diminishing carry appeal. Volatility in global conditions further adds to external vulnerabilities.

The government’s short-term objective is to consolidate disinflation, even at the cost of growing external pressure, signaling that reserve accumulation will only occur at the lower bound of the FX band. This sets downward expectations for the exchange rate path and positions the new regime as a transitional tool—anchoring expectations while laying the groundwork for a more competitive and unified FX market.

A key question going forward is how Argentina will accumulate the reserves needed to meet its quarterly IMF targets—USD 9 billion in 2025, with USD 5 billion due by the end of Q2 alone—and to prepare for heavier debt repayments starting in 2026. Reserve accumulation is increasingly seen as a necessary condition for regaining access to international capital markets. So far, however, the Central Bank has only intervened at the lower bound of the exchange rate band, stating it will not purchase reserves above that level—although technically it could do so within the band. Without meaningful FX intervention, the government may need to rely more heavily on local or external debt issuance to meet reserve targets. This trade-off between FX stability, reserve accumulation, and market access will shape the next phase of the stabilization strategy.

4. Public Debt and Fiscal Deficit: Levels, trends, and implications for investors

Fiscal performance remains the cornerstone of Argentina’s stabilization program. The government achieved a primary surplus of 0.5% of GDP in Q1 2025, compared to 0.2% in the same period of 2024 and a 0.7% deficit in 2023. This improvement reflects strict spending control, with significant real cuts relative to 2023 levels, particularly in public works, subsidies, discretionary transfers, and public wages. While the IMF program sets a primary surplus target of 1.3% of GDP for 2025, the government maintains it will overperform and reach 1.6%—a message aimed at reinforcing market confidence and policy credibility.

On the debt side, gross public debt reached USD 473.6 billion in March 2025, with 54% denominated in foreign currency and 46% in pesos. Almost 82% of the stock corresponds to Treasury securities, while multilateral and bilateral loans account for 17%. Although debt service has been manageable so far—thanks to favorable maturity profiles and capitalizable instruments—the government faces a more demanding schedule from 2026 onward. Continued fiscal discipline and sustained reserve accumulation will be essential to re-enter global debt markets under improved conditions.

3. Political Landscape 

1. Overview of the current government and its economic policies

Argentina is entering a crucial phase of its political cycle: 2025 is an election year, with legislative midterms scheduled for October. These elections will determine whether President Javier Milei’s administration can secure a stronger congressional presence and advance a deeper structural agenda through formal legislation.

So far, the government has governed without a majority in Congress, relying on executive orders, administrative reforms, and regulatory changes to implement its economic program. While this approach allowed for swift macro stabilization, the momentum of reform has slowed, and there is currently no flagship legislative initiative driving structural change. The political strategy has shifted toward consolidating results—particularly on inflation and fiscal balance—as the core message ahead of the elections.

Although initial macro successes helped build political capital, public confidence in the government has declined steadily in recent months. As of April 2025, the Government Confidence Index stands at 46.6%, down 6.8 points from its November 2024 peak. While still high by historical standards, this figure is now 5.6 points below the comparable reading for the Macri administration at the same point in its term. This trend reflects growing public fatigue with the social costs of adjustment and the delay in real wage recovery.

Internally, the administration faces tensions with provincial governments and allied factions. Its combative political style, while effective in maintaining control of the narrative, limits coalition-building capacity and raises institutional frictions that may intensify during the campaign.

Looking ahead, the midterm elections will be pivotal. A strong showing could grant the government the institutional backing to reignite the reform process. Until then, the strategy will likely prioritize preserving macro stability, containing inflation, and managing political risks through executive pragmatism.

2. Structural economic reforms ongoing 

Argentina is already undergoing a far-reaching economic transformation aimed at liberalizing the economy, reducing regulatory burdens, and improving the overall functioning of markets. The recently approved Extended Fund Facility (EFF) with the IMF builds upon this agenda and reinforces the structural reform path with a well-defined set of priorities and timelines.

The new program outlines a series of structural reforms to be implemented throughout 2025 and beyond, focusing on fostering a more open and market-oriented economy. Key areas include enhancing labor and product market flexibility, rationalizing the role of the state, streamlining the tax and pension systems, and improving governance frameworks in line with international standards. Specific reforms are anchored in landmark legislation such as the “Ley Bases” and the “Régimen de Incentivo a las Grandes Inversiones” (RIGI), which aim to attract large-scale investment, particularly in strategic sectors like energy and mining.

Progress is expected by the second half of 2025 on several structural benchmarks, including: a comprehensive tax reform proposal by December 2025, closure of most extra-budgetary trust funds, a streamlined registry for social assistance programs, and a governance framework for the privatization of state-owned enterprises. A broader pension reform, aimed at improving both equity and sustainability by streamlining the current fragmented system and better aligning contributions with benefits, is scheduled for December 2026.

These reforms are intended not only to improve efficiency and competitiveness, but also to lay the groundwork for sustainable growth and social development. Their successful implementation will require broad-based political and social support, especially as the country transitions toward greater exchange rate flexibility and re-engages with international capital markets.

4. Scenario Analysis and Forecast

Based on the April 2025 Market Expectations Survey (Central Bank's "Relevamiento de Expectativas de Mercado"), projections suggest a gradually improving economic outlook for 2025, with positive real growth, moderating inflation, and continued fiscal discipline.

After an estimated 1.7% contraction in 2024, Argentina's economy is now projected to grow by 5.1% in 2025, driven by a broad-based recovery. The top forecasters ("Top 10") expect a slightly higher expansion of 5.4%, reinforcing expectations of a cyclical rebound.

Annual inflation is expected to slow substantially, from 118% in 2024 to 27.5% in 2025. Core inflation is forecast to follow a similar trajectory, indicating more stable underlying price dynamics.

The nominal exchange rate is projected to average ARS 1,171/USD in May 2025 and reach ARS 1,322/USD by December 2025, implying a year-on-year depreciation of 29.5%. While higher than previous estimates, this still reflects a slower pace of devaluation compared to recent years.

On the fiscal front, the primary balance of the national non-financial public sector is expected to reach ARS 13.0 trillion in 2025, up from ARS 11.2 trillion previously forecasted. No primary deficit is expected for either 2025 or 2026.

Trade expectations remain solid. Exports are forecast to reach USD 82.8 billion and imports USD 73.0 billion in 2025, yielding a trade surplus of USD 9.8 billion. This figure is lower than the USD 18.9 billion surplus recorded in 2024, partly reflecting updated assumptions on imports and unchanged agricultural export estimates at the time of the survey.

Risks to the outlook include global financial volatility and domestic uncertainties related to inflation expectations, exchange rate dynamics, and policy execution. Nevertheless, the 2025 macro scenario points to an ongoing process of stabilization and recovery.

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