After the overwhelming victory of La Libertad Avanza in the legislative elections, Javier Milei's government is now seeking to focus all its efforts on economic reactivation by the end of the year.
The forcefulness of the electoral result strengthened the libertarian administration and caused an immediate impact on the markets, where Argentine stocks traded on Wall Street posted record increases, in some cases exceeding 40%, and country risk plummeted to 708 basis points, its lowest level in months.
The financial rebound, however, comes after a period of economic stagnation caused by the destabilization caused by Kirchnerism in Congress. The opposition's offensive against the fiscal balance program created an atmosphere of uncertainty that affected confidence, drove demand for currency hedging, and raised interest rates, which ultimately cooled economic activity.
Javier Milei junto al ministro caputo.
A report by consulting firm ACM confirmed this trend: “After falling significantly at the beginning of 2024, the economy had started a recovery that peaked in February 2024. Since March, the economy began to show signs of cooling, leaving the level of activity 1.1% below the recent peak.” Meanwhile, INDEC detected a 0.3% rebound in August.
The Market Expectations Survey (REM) of the Central Bank cut annual GDP growth projections from the 5% forecast at the beginning of the year to 3.9%, although the improvement in the political climate after the administration's victory is expected to reverse that trend. In fact, consulting firms are already anticipating an upward revision for 2025 if stability conditions are consolidated and if the drop in country risk enables the return of external financing.
Milei y Caputo.
The market reaction was immediate. Bank of America estimated that real rates could fall below 10% in the coming days, after having exceeded 30% on CER-adjusted bonds. Local banks, meanwhile, expect the Central Bank to ease the strong monetary tightening and relax the reserve requirements regime, which would allow for greater liquidity and boost credit.
In this regard, Milei was optimistic and stated that investment will be the engine of growth in the coming years, highlighting commitments of nearly 100 billion dollars under the Large Investment Incentive Regime (RIGI).
From consulting firm Abeceb, led by Dante Sica, they maintain that the recent volatility “was more due to a political scenario on the eve of the elections than to doubts about the essentials” and forecast a period of macroeconomic consolidation. With popular support reaffirmed and calm in the markets, Milei's government now aims to reactivate the economy and leave behind the stagnation caused by Kirchnerism in Congress.
