Argentina's Austerity-Hit Economy Slides Toward Recession, Testing Milei a Year Before the 2027 Vote

BUENOS AIRES — Argentina's economy is likely to have slipped into recession in the third quarter of 2026, economists say, as President Javier Milei's austerity programme squeezes household spending even while it has brought inflation down from a sky-high 200% to about 30%.

The warning, reported by Reuters on 2 November 2026, lands a year before the October 2027 presidential election, when Milei is widely expected to seek a second term — and it captures a two-track economy in which export sectors are thriving while the domestic market that most Argentines live in is shrinking.

Illustration: Idle machines on a Buenos Aires textile factory floor. This is an illustration, not a photograph of a real event.

What Happened

At Eseka, a family-owned factory in Buenos Aires that still produces nearly 3 million items a month — including underwear and swimwear for its Cocot and Dufour brands — a machine used to wrap packets of coloured socks sits silent. More than half of the firm's circular knitting machines stand idle, according to its owners, brothers Ricardo and Gustavo Kuchikian.

Since Milei took office in December 2023, the firm's sales have fallen around 40%, Reuters reported, battered by weak consumer demand and competition from cheaper imports as the government lifted trade restrictions. The firm posted losses last year and shed about 30% of its workforce.

"The situation is critical," Ricardo Kuchikian said. "Consumption has fallen very sharply over the past three years." He feared that if Milei's policies continue, "national industry could disappear."

The squeeze is not confined to one factory. In the first nine months of 2026, consumption in Argentina fell 2.7% compared with the same period in 2025, according to market research firm Scentia, which tracks sales across supermarkets, small retailers and e-commerce platforms. Think-tank Fundar counted some 32,300 business closures — roughly 6% of all companies in Argentina — between Milei taking power in December 2023 and July 2026.

Official data for August, from Argentina's INDEC statistics agency, showed manufacturing down 3.2% year on year, retail and wholesale trade down 3.5%, and construction down 2.5%.

Background

Milei, a libertarian economist, won office promising radical austerity to end chronic inflation and fiscal chaos. His programme has, by the measures its supporters cite, delivered on the macroeconomic front: inflation has slowed to about 30% from around 200%, and other imbalances have been brought under control. Investors have cheered the easing of strict import restrictions, capital and currency controls, and other regulations that long weighed on business in Argentina.

But household consumption accounts for about two-thirds of Argentina's gross domestic product, so a sustained pullback in spending drags on the broader economy. The share of Argentines living beneath the poverty line has risen to nearly a third of the population, Reuters reported, after falling to an eight-year low in 2025 — a sign, critics say, that the benefits of stabilisation have yet to reach much of the broader public.

For many local firms, the opening to imports arrived just as domestic demand weakened. Martin Abigador, director of Dakuba, another family-owned business that distributes fabrics, told Reuters his sales had fallen about 40% since the end of 2023, and that his company had been unable to offset what he described as "aggressive competition" from foreign imports, mainly from China.

Illustration: Shoppers with sparse baskets in a Buenos Aires market. This is an illustration, not a photograph of a real event.

Why It Matters

Economists say the economy likely dipped into recession in the July–September quarter, meeting the common definition of two consecutive quarters of contraction. Gross domestic product already fell 0.6% in the second quarter from the first, and Ricardo Delgado, head of consultancy Analytica, forecasts a further contraction of around 1.5% for the third quarter. Official data for the quarter will be released in November.

"Argentina's economy is technically in a moderate recession," Delgado said, according to Reuters.

The political stakes are plain. According to a recent survey by consultancy Giacobbe y Asociados, Milei's approval rating slipped slightly in October to 36%, while disapproval rose to 56%. A slight rebound is forecast for 2027, but Delgado said he expected the two-track economy to continue with "ups and downs" in 2027, warning that household finances were unlikely to improve meaningfully before the election.

Milei has ruled out changes to his economic plan, dismissing as "colossal stupidity" claims that people were unable to make ends meet. A government spokesperson defended the uneven pace of the recovery, saying growth never occurs uniformly across sectors. "This is the economic program the president believes in, and he is not going to change it," the spokesperson said.

Not all of the economy is suffering. Energy, mining and agriculture have emerged as the winners under Milei's model, driven by exports and investment in Argentina's vast shale oil and gas reserves, as well as rising global demand for minerals such as lithium. But the strength of those export-oriented sectors has so far not offset the slump in textiles, car manufacturing, retail and construction — industries tied to the domestic market.

Illustration: A two-track Argentine economy — a falling chart beside a shuttered shop. This is an illustration, not a photograph of a real event.

What Happens Next

Three things to watch in the coming weeks and months:

• Official third-quarter GDP data, due in November. If it confirms a second consecutive quarterly contraction, the recession label will move from economists' forecasts to the official record — and the debate will shift to how deep and how long it lasts.
• Household spending through the year-end holidays. Consumption data for the final quarter will show whether the 2.7% fall in the first nine months is stabilising or deepening, and whether retailers and manufacturers see any relief.
• The run-up to the October 2027 election. Milei is widely expected to run for a second term. His challenge is to show voters that the export-led winners — energy, mining and agriculture — can eventually lift the domestic economy, before patience with austerity runs out.
• Whether import competition eases or intensifies. Local manufacturers say cheaper imports, mainly from China, are compounding weak demand; any shift in trade policy, or in import volumes, will be felt first on factory floors like Eseka's.

For now, the sock-wrapping machine in Buenos Aires stays silent — a small, concrete image of an economy waiting for its recovery to reach the people who buy, make and sell for a living.

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FAQ

Is Argentina officially in recession?

Not yet on official data. Economists say the economy likely contracted for a second consecutive quarter in July–September 2026, which would meet the common definition of a recession, but official third-quarter figures are due in November 2026.

How much has inflation fallen under Milei?

According to Reuters' reporting, Milei's austerity measures have slowed inflation to about 30% from a sky-high 200% when he took office in December 2023.

Why are Argentine businesses closing?

Fundar counted about 32,300 closures between December 2023 and July 2026. Businesses cite weak consumer demand — consumption fell 2.7% in the first nine months of 2026 — and competition from cheaper imports after trade restrictions were lifted.

Which sectors are doing well in Argentina?

Energy, mining and agriculture, driven by exports and investment in shale oil and gas reserves and rising global demand for minerals such as lithium, according to Reuters.

When is Argentina's next presidential election?

October 2027. Milei is widely expected to run for a second term, and economists expect household finances are unlikely to improve meaningfully before the vote.

Sources

• Reuters, "Argentina's austerity-hit economy reels towards recession, testing Milei ahead of 2027 vote," 2 November 2026.
• Fundar business-closure figures, Scentia consumption data, INDEC August 2026 data, and Analytica and Giacobbe y Asociados survey figures, as reported by Reuters on 2 November 2026.