Argentina's two-speed economy deepens as peso appreciates and manufacturing collapses

The wholesale dollar closed Wednesday at $1,517, essentially unchanged from the end of September, while the gap with the ceiling of the currency band widened to 27%, the widest level since April 2025. That seemingly technical FX data point actually captures the central tension defining Argentina's economy right now: the central bank is buying dollars at a healthy pace, the exchange rate is appreciating in real terms, and global markets are growing increasingly hostile to sovereign financing. Navigating those three forces simultaneously, with elections less than a year away, is the challenge framing every economic discussion this week.

Volatility in international markets was the immediate trigger for the most difficult session. The U.S. ten-year Treasury yield climbed to 5.34% intraday before closing around 5.28%, its highest level since 2002, dragging riskier assets lower around the world. The S&P Merval index fell 2.5% to 2,824,123 points, and JP Morgan's country risk gauge touched 600 basis points during the morning, closing at 586. ADRs of Argentine banks listed on Wall Street dropped between 3.1% and 4.6%. The truce had lasted barely two sessions: on Monday, Flávio Bolsonaro's victory in the first round of Brazil's presidential election had triggered an 8.9% rebound in the Bovespa and lifted the Merval 3.7%, with global bonds rising more than 2% and country risk tumbling 49 points. That optimism evaporated within hours when the conflict in the Strait of Hormuz flared up again and sovereign yields in developed economies resumed their climb. Brent crude held near USD 101, a level IMF Managing Director Kristalina Georgieva warned could persist until 2027 even if the conflict is resolved in the short term, adding pressure on logistics costs and inflation.

Against that external backdrop, the central bank stepped up its FX market purchases: USD 369 million last week and another USD 100 million in the first three days of this one, with gross reserves approaching USD 49.134 billion. Yet analysts at consultancy Analytica cautioned that the gap between what the BCRA buys and what it actually retains remains wide, given that Treasury debt maturities consume a significant share of those dollars. BCRA Vice President Vladimir Werning revealed during World Investor Week that companies and provinces liquidated nearly USD 19 billion in the FX market between October 2025 and September 2026, out of a total placed of USD 23.6 billion. The difference—USD 4.6 billion still pending liquidation—is the buffer on which Minister Luis Caputo has publicly built his confidence, projecting that the BCRA will end 2026 with purchases close to USD 20 billion.

The 2027 financing program, however, shows more vulnerable flanks. Issuances of the Bonar 2029 were paused before reaching the USD 2 billion target, with a USD 800 million shortfall for the year-end that the Economy Ministry says it can absorb, though it is evaluating alternatives. Economist Alberto Ades—recently invited by Javier Milei to present before the Cabinet—put forward a paper concluding that the real exchange rate stands 29% below the average of the last 23 years, placing the peso at appreciation levels that have historically generated external vulnerability. At that same event, economist Carlos Melconian captured the paradox precisely: "Next year is a tricky year in that sense, in the sense that the Government is playing on defensive terrain where it doesn't want financial conflict." Tax, labor and credit reforms—which Melconian identifies as the pending structural transformations—are advancing, he said, "very slowly."

The real economy confirms that diagnosis. According to the central bank's Market Expectations Survey, which consolidates projections from 44 consultancies and financial institutions, GDP contracted 1% in the third quarter on a seasonally adjusted basis, accumulating two consecutive quarters of contraction: the technical definition of recession. The World Bank cut its 2026 growth forecast from 3.6% to 2.1%, the second downward revision of the year. Manufacturing posted a cumulative 2.7% year-on-year decline in the first eight months of the year and stands 11.2% below 2023 levels, the fourth-worst performance in the world according to UNIDO data processed by former minister Matías Kulfas. Import liberalization, which allowed cellphone imports to surge 746% year-on-year, devastated local electronics production, which fell 60% versus November 2023, levels comparable to the worst moments of the pandemic. In the auto sector, production fell 15.6% year-on-year in September, and the industry—which expected to sell 640,000 vehicles in 2026—will close the year closer to 500,000.

Economist Martín Rapetti, of Equilibra, offered the most useful analytical key for interpreting these numbers: excluding energy, mining and agriculture, 85% of the economy sits below 2023 levels and has been stagnant since the beginning of last year. It is the two-speed economy everyone mentions but few quantify so forcefully. The winning sectors are advancing at double-digit rates: lithium exports grew 190% year-on-year in the first eight months of the year, and the accumulated energy surplus between January and August has already surpassed the total recorded for all of 2025. South Korea's Posco, which has invested more than USD 2 billion in the country, inaugurated its Plant II in Salta this week with members of the national cabinet in attendance. YPF closed a long-term offtake agreement with TotalEnergies for the entire output of sustainable aviation fuel (SAF) from the future biorefinery in San Lorenzo, a transaction that requires an investment of more than USD 400 million and represents the first contract of its kind in the country's history, opening the door to financing under a project finance scheme. In parallel, a delegation of U.S. officials is touring the country to advance implementation of the Andes-Atlantic Corridor, a bilateral initiative aimed at modernizing the rail, energy and port infrastructure connecting the Puna and Vaca Muerta with the Atlantic, signed on September 23 in New York. And Argentina joined, in Milwaukee at the G20, a joint declaration from 15 countries challenging the excess productive capacity sustained with state subsidies—implicitly directed at China—in sectors such as electric vehicles, batteries and solar panels.

While the export sector takes off, the social fabric shows deterioration that no macroeconomic aggregate can conceal. 54% of Argentines said they had fallen behind or stopped paying some obligation for economic reasons in recent months, according to a report by Fundación Pensar and consultancy Casa Tres. 26% of those who took out credit used it to buy food; 21% for everyday household expenses. Unemployment displaced inflation as the main public concern in the September Management & Fit survey, with 19.8% of mentions versus 17.6% in the previous poll. Greater Rosario registered an unemployment rate above 11%, while Greater Neuquén—driven by Vaca Muerta—stood at 2.5%. Poultry company Granja Tres Arroyos confirmed 1,250 layoffs after mandatory conciliation expired without an agreement; Algodonera Avellaneda—a textile firm owned by the Vicentin family—moved toward bankruptcy after no bidder came forward within the court-imposed rescue window. Nissan completed its exit from the country, transferring local distribution to the Simpa and Tagle groups.

Next week attention will concentrate on several fronts simultaneously: this Thursday saw the opening of economic bids from the two consortia competing for 90% of AySA, the Milei government's largest privatization—with proposals that, according to Infobae, would come in below the USD 500 million the Economy Ministry hoped to raise. Also this Friday, the regulatory framework for the Fiscal Innocence Law II will be published, whose delay has generated uncertainty across the accounting system. Luis Caputo will travel to Bangkok for the IMF and World Bank Annual Meetings, where the agenda will be dominated by global fiscal pressure, energy prices and the role of artificial intelligence. And on October 25, Brazil's runoff will determine whether Flávio Bolsonaro consolidates the lead he obtained in the first round—an outcome markets have already begun to price into regional assets.