Argentina goes through a decisive moment on the eve of the October 26 legislative elections. The Javier Milei government faces exchange rate pressure, signs of recession and loss of political support, a set of factors that increases the caution between investors – and makes analysts preach more defensive positions fearing the end of the so -called “Milei effect”, which at the beginning of the government made the country’s assets to soak.
After a year of overwhelming losses in the stock market, the subject is the exchange rate. For Bradesco BBI, after the official dollar in the wholesale market, it is a warning about the fragility of the regime.
“The market continues to question the credibility of the band system and the ability of the BCRA to defend it. With only about $ 22 billion in free reserves and 26 trading sessions until the election of October 26, the Central Bank walks on narrow ground,” analysts wrote.
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The report details three possible strategies. “An intervention like yesterday fits a conservative scenario, where monetary authority only softens volatility, using something close to $ 1.3 billion. A moderate posture of $ 150 million per day can be sustainable if the pressure remains contained, but increases risks. aggressive strategy, burning US $ 300 million a day, could lead to the rapid exhaustion of reserves And force a change of regime, eroding public trust and bringing serious electoral consequences, ”says Bradesco BBI.
The bank adds that there are additional risks ahead. “Debt salaries in weights in the coming weeks may increase liquidity in local currency and therefore demand for dollars. Historically, periods of uncertainty about eventual devaluation also generate acceleration of imports and postponement of exports, which may be the trigger for new market movements.”
Economy on the brink of recession
JPMorgan evaluates that the Argentine economy is already moving towards a technical recession. “, Eliminating part of the 3.5% annualized advance in the first quarter. It is the first negative reading since the second quarter of 2024 and puts the economy on the way to two consecutive quarters of fall,” the analysts highlight.
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The bank also sees the third quarter as even more challenging, with indicators from July and August pointing to an even stronger retraction. “Turbulence has reached its peak with the defeat in the elections of the province of Buenos Aires. With the political risk and uncertainty persisting until October, economic malaise will hardly give respite.”
Itaú BBA also highlights signs of weakening of the activity. “Despite the growth of 6.3% over the previous year, GDP fell 0.1% in quarterly comparison, reflecting a 1.1% drop in private consumption and 0.5% in fixed investments, while industry and construction retreated in July,” Diego Ciongo and Soledad Castagna, Banco economists said.
A also helps to explain the picture. “The Torcuato Di Tella University Consumer Trust Index fell by 13.9% from July to August, reflecting a worsening of macroeconomic perspectives and less willing to buy durable and real estate. Credit, pressured by high interest rates, practically stagnated in the third quarter. This reinforces the risks of falling 5% growth projection in 2025.”
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Policy expands uncertainties
The political dimension adds another instability element. By announcing the 2026 budget ,. The measure was read as tactical retreat after the defeat in Buenos Aires.
For JPMorgan, “the government has made clear fiscal concessions, but remains unable to regain control over Congress. This was evident when the House of Representatives overthrew presidential vetoes in sensitive areas such as health and universities. The movement reflects a broader political realignment, in which governors and parliamentarians who were once close to the executive.”
At the same time, the government deals with one, which raised popular rejection to record levels.
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What is at stake for investors
Among banks, the evaluation converges: Argentina crosses critical weeks. For Bradesco BBI, “there is still a light at the end of the tunnel to justify greater exposure to local assets”, with preference for energy -related companies and exports, less dependent on domestic consumption and exchange rate volatility.
This Thursday, in a new warning for investors.
The JPMorgan warns that, after the October election, it will be essential to “rebuild the stock of international reserves, as the trend there is of continuous erosion.”
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And Itaú BBA summarizes: “With high interest rates, crashed credit and confidence in fall, domestic activity has lost breath. If nothing changes, the risk of recession in 2025 is increasing.”
