The Upside-Down World Has Arrived: Real Economy Surges While Financial Markets Struggle in Argentina

Argentina is a country of dichotomous, polarized, unpredictable, and sometimes erratic contradictions. Yet, this unpredictability is part of its unique appeal. While Argentina’s real economy shows strong growth, financial markets appear detached, reacting instead to the IMF's silence and uncertainty surrounding foreign exchange controls and the dollar.

Dear ArgenGrowther,

Every week, we present the key data from the past week and delve into various aspects of our beloved Argentina to assess their impact, understand what's happening, and make better decisions. The newsletter is divided into four main sections:

1. Brief Reflection

2. Data

3. Understanding What's Happening in Detail

4. Actionable Items

Brief Reflection: Argentina’s Economic Paradox

The tide has turned. Argentina's real economy is growing rapidly, yet financial markets remain skeptical. This paradox plays out in real-time as Argentina’s macroeconomic indicators strengthen, but investors hesitate.

The disconnect stems largely from uncertainty: foreign exchange controls, market restrictions, and the gradual pace of economic reforms fuel investor doubt. The market demands quick, decisive action, but the government remains committed to a measured, step-by-step approach.

Despite skepticism, the government maintains its course. The restructuring of public accounts is progressing, the fiscal surplus remains firm, and confidence in economic management is growing among the broader public. Market players want immediate solutions, but polling data suggests that support for the administration’s economic direction is increasing.

The upcoming midterm elections may prove a turning point. Will Argentina consolidate its economic transformation and prove to global investors that it has changed? The numbers say yes, but the market’s response remains uncertain.

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Is Argentina's Economic Shift Positive or Negative?

Spoiler alert: Ugh, what to say? No spoilers today; draw your conclusions. The economy is in full locomotive mode, the Central Bank isn’t slowing down on purchases, yet the skeptical market sells Argentina. The dollar rises, country risk increases, and bonds and stocks drop. Meanwhile, the streets are not just holding up—consuming and backing the government’s course.

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Foreign Exchange Policy: The Peso vs. The Dollar

The peso’s trajectory remains under intense scrutiny. The government’s tight monetary policy has maintained exchange rate stability, but concerns persist about potential currency misalignment.

Similar fears arose last year when analysts predicted the peso would collapse. Instead, the government maintained control, defying expectations. Will history repeat itself? Is this another seasonal trend, or is the peso facing real pressure?

The administration has repeatedly outperformed market expectations, proving its ability to maintain exchange rate discipline and inflation control. However, the external economic climate remains uncertain, and investors remain cautious.

At the Central Bank, foreign exchange reserves continue to grow, aided by strong currency inflows. The government has successfully managed seasonal dollar outflows, particularly from tourism, without excessive volatility.

Argentina’s cash-based current account deficit has persisted for seven consecutive months. However, estimates from Consultora 1816 suggest that, if adjusted for regulatory currency blends, the deficit of USD -7.5B would shift to a USD 2.5B surplus. This demonstrates how headline economic data must be analyzed in the context of Argentina’s unique currency regulations.

Public Accounts and Fiscal Surplus: The Sustainability Question

A key question remains: Can Argentina sustain its fiscal surplus? The data answer —yes.

Even after eliminating the PAIS tax and reducing export duties (DEX), government revenue continued to grow by 5.6% in real terms year-over-year in January.

Revenue composition is shifting toward sustainable sources like employment and consumption taxes. This suggests that fiscal stability depends not on short-term revenue measures but on long-term economic transformation.

The breakdown of tax revenue confirms this trend: Social Security contributions increased by $1.23B, VAT rose by $0.567B, Income Tax collections grew by $0.675B, and Financial Transaction Taxes added $0.209B. These figures demonstrate that Argentina’s fiscal strategy remains solid.

National Public Sector: Strength and Stability

The government remains unwavering in its commitment to fiscal surplus as the cornerstone of economic policy. It reached a crucial milestone in January: proving to the world that tax reductions do not compromise budgetary balance.

When trade-related taxes are excluded, Argentina’s real revenue growth is an impressive 21% yearly. This confirms that the administration’s fiscal consolidation strategy is working.

Employment and economic activity mainly drive the recovery in tax revenues. With economic growth above 5%, Argentina can sustain tax collection without relying on temporary or distortionary measures like the PAIS tax or export duties.

Central Bank Strategy: The Road to Currency Liberalization

While the IMF loan disbursement remains a focal point, the government has set another key condition for lifting currency controls—aligning the Monetary Base (BM) with the Broad Monetary Base (BMA).

Economy Minister Luis Caputo recently reaffirmed that Argentina is 64% of the way toward achieving this goal. However, foreign exchange restrictions will remain in place until full alignment is reached.

Argentina ended 2024 with a strong trade surplus of USD +18.6B and net private sector loan inflows of USD +11.8B. Analysts argue that if current trade trends continue, Argentina could sustain external debt payments without additional financing.

The country can reposition itself as a leading Latin American exporter. However, investor confidence must return before this potential can be fully realized.

Economic Activity: Growth Beyond Recovery

Argentina has moved beyond recovery mode—it is now in full expansion.

Economic indicators confirm that 2025 will position Argentina among the world’s fastest-growing economies and the regional leader in GDP growth. Key data points show broad-based economic acceleration.

Retail sales started the year with a 25.5% year-on-year increase. While this seems like a major rebound, it’s essential to consider that January 2024 was one of the weakest months in recent history. Even so, the sharp rise in retail sales confirms that consumer activity is reviving at an impressive pace.

Imports are another clear indicator of economic recovery. After a significant drop last year, imports have rebounded strongly, reflecting higher production activity and increasing demand for goods and services. Crucially, this time, exports are also growing alongside imports, reinforcing trade balance stability.

Industrial production continues its upward trajectory. In December, Argentina’s industrial sector grew by 8.4% year over year, signaling that the economy is no longer just stabilizing but expanding across multiple industries. However, the full-year data shows that 2024 ended with an accumulated contraction of—-9.4 %, emphasizing just how deep last year’s downturn was and why the rebound appears so dramatic.

Oil and gas remain the standout sector in Argentina’s economic expansion. Investment flows into energy production are accelerating, and export prospects are strengthening as global demand for energy resources remains high.

At the same time, mining is gaining investor attention as regulatory changes make Argentina more competitive in the global copper market. Thanks to the implementation of RIGI (Régimen de Incentivo para Grandes Inversiones), Argentina has a lower tax burden on copper mining than Chile and Peru.

• Argentina: 38% tax burden on copper mining

• Chile: 45%

• Peru: 42%

This tax advantage positions Argentina as a more attractive investment destination for multinational mining companies. Given Argentina’s rich natural resources, foreign investment in the mining sector is expected to grow in the coming years.

These factors confirm that Argentina is entering a sustained growth phase, driven by strong industrial production, recovering trade, and increasing foreign investment.

The Street: Consumer Confidence and Economic Stability

Rising consumer confidence, supported by real wage growth and employment expansion, is a key factor behind Argentina's strong economic performance.

In December 2024, Argentina recorded its highest real wage levels in the registered private sector in five years, 5% above November 2023. Meanwhile, private-sector employment has been recovering for four consecutive months, marking the second-fastest growth rate since 2009.

Macroeconomic stability and declining inflation have improved purchasing power, fueling a credit boom. Consumer loans are expanding rapidly, reflecting renewed confidence in economic stability.

Stronger household finances have significantly decreased labor disputes. In the second half of 2024, an average of only 14 monthly labor conflicts with strikes were recorded—the lowest level in two decades.

The economic impact is clear: with rising wages, stable inflation, and job creation, household spending is rebounding. The best part? The growth cycle is just beginning.

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Actionables

The Merval Index faced a correction this week, reflecting investor caution. Meanwhile, Brazil’s real is recovering, which benefits Argentina’s trade positioning.

The peso bond curve remains stable, with only minor fluctuations in forward rate expectations (TEMs). However, the IMF’s silence on Argentina’s debt restructuring triggered market uncertainty, increasing selling pressure on bonds.

Despite this, high-yield Argentine bonds remain attractive to long-term investors. The yield on USD-denominated debt remains double-digit, presenting opportunities for those willing to tolerate risk.

Investors with a low-risk tolerance should avoid peso-denominated assets, but Argentina remains a compelling opportunity for those seeking USD returns above 10%.

Final Takeaway: Argentina’s Economic Crossroads

Argentina is at a defining moment. If fiscal discipline holds, exports continue to rise, and currency restrictions are lifted as planned, the country could emerge as a new investment hotspot.

While uncertainty remains, key economic indicators suggest that Argentina is stabilizing, with long-term growth prospects improving.

Argentina offers substantial upside for high-risk investors. If the current economic strategy succeeds, the opportunities ahead could be significant.

If you’ve enjoyed this analysis, please share your thoughts, comments, and feedback. Let’s keep the conversation about Argentina’s transformation alive.

Nau Bernués
Founder, ArgenGrowth

PS: Follow me on Twitter and LinkedIn, and let's discuss the Argentine economy's challenges