A year out from Argentine President Javier Milei’s reelection bid, the economic recovery that underpinned his popularity is stalling. Gross domestic product shrank 0.6% in the second quarter, the first contraction in two years and a setback for a government counting on stronger growth ahead of the October 2027 election.

Milei’s “shock therapy” sharply slowed price increases, but polls show voters are increasingly concerned about the weak jobs market. Output rose 2% from a year earlier, supported by booming exports of energy and agricultural products, while imports fell. Economy Minister Luis Caputo boasted that 13 of 16 sectors grew in the first half of the year. Even so, the figures are “not nearly compelling enough to dispel political concerns,” said Jimena Zuniga of Bloomberg Economics.

Investors in sovereign debt worry weakening support for Milei’s program could increase the chances of a reversal of his fiscal and market reforms after the 2027 election. Milei’s leftist opponents are seeking to turn rising unemployment and weak household incomes into central issues. Fernando Marull sees a possible second consecutive contraction, while Carlos Melconian said the outlook for households is bleak. “The components people actually feel are already getting crushed,” he said.

Annual inflation slowed to 34%, from more than 200% when Milei took office. An Atlas Intel poll found that corruption and unemployment have overtaken inflation among voters’ top concerns. Buenos Aires Governor Axel Kicillof called the strong peso policy “criminal, suicidal,” while consumption contracted 2.4%. Registered private salaried employment has shrunk by about 246,300 jobs since just before Milei took office.