Credit has nearly stopped growing; defaults are rising; the economy is cooling.
JP Morgan downgraded Argentina's growth forecast to 4.7% annually, down from 5.3%, due to pre-election volatility and tight monetary conditions affecting economic activity. Credit growth in local currency slowed to 1% in the private sector while high interest rates drive rising defaults among households and businesses, signaling economic cooling.
- JP Morgan cut 2025 growth forecast to 4.7% from 5.3%
- Local-currency credit growth slowed to 1% in private sector
- Auto sales fell 10.4% month-over-month in July
- Government blocked pension increase worth 1.2% of GDP
- Peso debt maturing by year-end represents 11.5% of GDP
JP Morgan reduced its 2025 Argentina GDP growth projection to 4.7% from 5.3%, citing electoral uncertainty and interest rate volatility. The bank warns of decelerating credit and economic activity despite the government's fiscal discipline.
JP Morgan has trimmed its outlook for Argentina's economic growth this year, lowering the forecast to 4.7% from an earlier estimate of 5.3%. The downward revision reflects a combination of pressures: the uncertainty surrounding midterm elections, volatile interest rates, and a visible slowdown in credit availability that is beginning to cool activity across the economy.
The bank's analysis, released late last week, paints a picture of an economy that has lost momentum. In June, economic activity was barely half a percent above the average of the final quarter of the previous year, and it sat noticeably below where it stood in December. Compared to the post-pandemic peak of 2022, the economy was running 0.5% lower. The gap widened when measured against November 2017, before capital flows tightened sharply—a gap of 0.8 percentage points.
Credit tells a particularly cautious story. Local-currency lending to the private sector has slowed to roughly 1% real growth in the second half of the year, while elevated interest rates are pushing default rates higher among both households and businesses. Hard-currency credit, by contrast, has held up: it grew 3% over the past month and 153% year-over-year. Forward indicators for July offered little encouragement. Auto sales fell 10.4% month-over-month, industrial production dropped 2.8%, and retail sales continued their decline. Cement sales and private industrial output both contracted. The only bright spots were fiscal revenues, which rose 4.3% month-over-month after seasonal adjustment, and exports, which climbed 3.1% in value.
The recovery that began in the second quarter of last year has been uneven. Labor-intensive sectors remain lagging. The sectors that have driven growth since April 2024 are financial services, up 27.5%; commerce, up 8.3%; construction, up 12.2%; industry, up 1.2%; and mining, up 7.8%—all adjusted for seasonal patterns. Yet construction and industry remain below their 2017 and 2022 levels. Construction activity fell 15% in June compared to June 2022, and industrial production sits 16.8% below where it was then.
On the fiscal front, the government has held firm on spending discipline. When the opposition pushed a vote in Congress to override presidential vetoes on pension increases and disability spending, the administration blocked the pension increase—a move JP Morgan characterizes as a political victory that avoided a fiscal cost of roughly 1.2% of GDP. The lower house did overturn the veto on disability emergency legislation, which carries a fiscal cost of 0.3% of GDP, but that measure now heads to the Senate, where a two-thirds majority is required. The government can delay spending until a budget is approved.
The primary fiscal surplus accumulated through July reached 1.1% of GDP, with net cash results at 0.3%. JP Morgan projects the annual primary surplus will land at 1.7% of GDP and the overall result at 0.4% of GDP for the full year. Real revenues rose 2.8% year-over-year in July and 4.2% month-over-month after adjustment, placing them 1.4% above the 2024 average. But they remain 12.2% below 2017 levels, when the economy was at a cyclical peak. Spending fell 1.3% year-over-year in real terms in July, though it rose 5.5% month-over-month after seasonal adjustment. Capital spending has hit a historic low, and social transfers have dropped 16.3% compared to the 2017-2023 average; economic subsidies have fallen 50.5%.
The refinancing challenge looms. Peso-denominated debt maturing between August and December represents 11.5% of GDP, with 4.6% owed by the private sector. JP Morgan calculates the financial program will close the year with an 80% roll-over rate for peso debt overall, falling to 50% for the private sector, assuming 100% for the public sector. Achieving refinancing rates below 100% will require elevated positive real interest rates and high reserve requirements to absorb excess liquidity. The bank notes that while high real rates have limited near-term impact on fiscal accounts, normalizing market conditions will be essential to ensure monetary and fiscal stability over the medium term.
Citações Notáveis
We cut our annual GDP growth projection to 4.7% year-over-year— JP Morgan
Refinancing rates below 100% will require elevated positive real interest rates and high reserve requirements to absorb excess liquidity— JP Morgan
A Conversa do Hearth Outra perspectiva sobre a história
Why did JP Morgan cut the forecast now, specifically? What changed?
The timing matters. They're looking at June data that showed activity actually contracting month-over-month, and July's forward indicators—auto sales down 10%, industrial production down—all pointed to deceleration. But the real trigger is the combination: midterm elections are coming, interest rates are staying high, and credit in local currency has nearly stopped growing. That's a signal the economy is cooling.
The government blocked a pension increase worth 1.2% of GDP. That sounds like a win for fiscal discipline. Why is JP Morgan still downgrading?
Because blocking one veto doesn't solve the underlying problem. The economy is slowing regardless. High interest rates are making it harder for businesses and households to borrow and spend. That's the real drag. The fiscal victory is real, but it's not enough to offset what's happening in the credit market.
Local-currency credit grew only 1%. What does that mean for ordinary people?
It means businesses can't easily borrow to expand or hire. Households can't borrow to buy homes or cars. And the defaults are rising because the rates are so high. You see it in the data: auto sales collapsed 10% in one month. That's not a coincidence.
Hard-currency credit grew 153% year-over-year. Why such a difference?
People and businesses with access to dollars are borrowing in dollars because the rates are lower and more stable. It's a two-tier system. Those who can't access dollars are stuck with local currency at punishing rates. It tells you who's thriving and who's struggling.
The government is projecting a 1.7% primary surplus for the year. Isn't that good?
On paper, yes. But it's being achieved partly by cutting spending to historic lows—capital investment is at a minimum, social transfers are down 16%. You can run a surplus if you stop spending. The question is whether that's sustainable, and whether it's actually helping the economy grow. The forecast cut suggests it's not.
What happens when all that debt matures between now and December?
That's the real test. They need to refinance 11.5% of GDP in peso debt. If they can't roll it over at reasonable rates, they'll have a crisis. JP Morgan is saying it's possible, but only if real interest rates stay elevated and the central bank absorbs the excess liquidity. It's a delicate balance.