Argentina Economy Grows but Two-Speed Split Deepens

The Argentina economy expanded 0.4 percent in January from December and 1.9 percent year-on-year, matching analyst expectations but reinforcing a structural divide that defines President Javier Milei’s economic model. The Rio Times, the Latin American financial news outlet, reports that while the headline EMAE activity indicator reached a new all-time high, the growth is concentrated almost entirely in resource-extraction sectors that generate relatively few jobs — while manufacturing, retail, and construction continue to contract.

Ten of 15 sectors tracked by INDEC posted gains in January. Agriculture surged 25.1 percent year-on-year, fishing jumped 50.8 percent, and mining rose 9.6 percent — together contributing 1.7 percentage points of the total 1.9 percent expansion. Economy Minister Luis Caputo celebrated the result on social media, calling it “a new historic maximum.”

Where the Argentina Economy Is Falling Behind

The sectors that employ the most people are moving in the opposite direction. Manufacturing fell 2.6 percent year-on-year, wholesale and retail trade dropped 3.2 percent — its worst reading since September 2024 — and public administration declined 1.6 percent. Together, these sectors subtracted 0.9 percentage points from the headline figure, nearly halving the gains from agriculture and mining.

Consultancy Orlando Ferreres calculated a 1 percent year-on-year contraction in its own activity index for January, noting that when agriculture is stripped out, the seasonally adjusted economy was essentially flat. “The economy continues to show two realities,” the firm wrote — dynamic resource sectors alongside labor-intensive industries that remain weak.

The Political Context

The data arrives as Milei faces his lowest approval rating since taking office. The AtlasIntel/Bloomberg LatAm Pulse survey placed his approval at 36 percent in March, down from peaks above 50 percent in his first year. His flagship promise to bring monthly inflation below 1 percent has stalled — February’s reading came in near 3 percent, and the last meaningful decline occurred in May 2025.

Unemployment rose to 7.5 percent in the fourth quarter of 2025, the highest for any Q4 since the pandemic. The central bank’s February survey projects 3.4 percent GDP growth for 2026 and inflation decelerating to 26 percent — a vast improvement from the crisis Milei inherited but well above his stated targets.

What It Means for the Milei Model

Argentina grew 4.4 percent in 2025, driven by private consumption (+7.9%), exports (+7.6%), and investment (+16.4%). But the January data suggests that 2026’s growth will depend on whether the resource boom can eventually pull manufacturing and consumer spending upward — or whether the two-speed economy becomes a permanent feature of the austerity model.

Milei’s recent public clash with industrial leaders, including Techint CEO Paolo Rocca — whom he called a “thief” — suggests the government has no intention of softening its stance toward sectors it views as rent-seeking. For investors watching Latin America, the question is whether an economy growing at historic highs on paper can sustain political support when the industries that employ most Argentines are still shrinking. The regional context of right-wing economic experiments makes Argentina’s outcome a bellwether for the continent.