Latin America Economic Outlook 2026

By Amanda Perez and Miguel Ramos

Aerial view of Rio de Janeiro Coast

Latin America and the Caribbean enter 2026 with modest but improving macroeconomic conditions, though growth remains constrained by structural and external headwinds. Regional GDP growth is expected to remain muted, with forecasts clustering in the low-2 percent, supported by easing inflation, gradually improving financial conditions, and resilient commodity prices, particularly for metal and food exporters. At the same time, elevated trade uncertainty, sluggish domestic demand in several large economies, and limited fiscal space continue to cap growth momentum. While inflation has largely returned to target ranges across much of the region allowing for selective monetary easing, high real interest rates and elevated public debt burdens restrict governments’ ability to deploy countercyclical policy.

Geopolitical developments are a defining feature of the 2026 outlook, shaping trade, investment, and supply-chain decisions. Ongoing global trade tensions, evolving U.S.–China relations, and the upcoming review of the United States Mexico and Canada Agreement (USMCA) are influencing export strategies and manufacturing integration. Many countries are pursuing tariff negotiations with the U.S. while simultaneously seeking to diversify export markets, though most forecasts suggest these shifts are unlikely to materially boost near-term growth. At the same time, structural forces such as abundant copper, lithium, and agriculture, a growing digital economy, and shifts toward near- and friend-shoring, are expanding the range of potential growth pathways. U.S. engagement is expanding around security, migration control, critical minerals, and energy, increasing the region’s strategic relevance but adding political and regulatory complexities, particularly in relation to Venezuela and broader hemispheric security. These developments coincide with pivotal elections in several major economies with indications of a shift toward more centrist governance, which could bolster institutional credibility and investor confidence in select markets.

Under these conditions, growth outcomes in 2026 are expected to remain uneven across countries and sectors. Economies with stronger macro frameworks, clearer regulatory environments, and exposure to structural tailwinds such as nearshoring, energy transition, critical minerals, and digital infrastructure are better positioned to outperform. However, downside risks remain, including potential escalation of trade barriers, tighter global financial conditions, climate-related shocks, and persistent security challenges. Overall, the region’s 2026 outlook is cautiously constructive, with improving macro stability and emerging structural opportunities creating greater optionality. However, achieving durable growth will depend on policy credibility, institutional capacity, and the ability to navigate a fragmented and geopolitically complex global environment.

Against this regional backdrop, we will explore in greater detail the specific dynamics and 2026 economic outlooks of several major economies across Latin America and the Caribbean:

BRAZIL

Brazil enters 2026 in a phase of macroeconomic stabilization rather than acceleration, with growth expected to remain modest as the economy absorbs the lagged effects of restrictive monetary policy and a softer global environment. Current forecasts from major institutions broadly converge around real GDP growth of approximately 1.6–1.8%, placing Brazil slightly below the expected average for Latin America’s largest economies and reinforcing the view that 2026 will be a year of consolidation rather than renewed expansion. This outcome reflects resilient labor markets and household income on one hand, offset by subdued investment, cautious credit conditions, and still-high real interest rates on the other.

Inflation dynamics are improving and anchor the 2026 outlook. Price pressures eased materially in 2025, bringing inflation back toward the central bank’s target range, though progress has varied across components. Inflation is expected to converge toward the mid-3% range by end-2026, with forecast differences largely reflecting methodology (annual average versus end-period) rather than divergent views on the disinflation path. Against this backdrop, the Banco Central do Brasil has signaled that easing could begin in early 2026, but with a clear emphasis on caution. Monetary policy is likely to remain restrictive for much of the year as the central bank prioritizes anchoring expectations and preserving credibility.

Externally, Brazil’s position provides an important stabilizing factor amid subdued domestic momentum. The country is expected to post a large trade surplus in 2026, supported by resilient commodity-led export performance, diversified trade partners, and relatively contained import growth. This strength in the external accounts helps cushion the economy against global volatility and provides balance-of-payments stability, even amid uneven global growth and trade-related risks, particularly related to U.S. tariffs and broader geopolitical tensions. While the external environment is unlikely to deliver a major growth impulse, it should remain supportive enough to reduce the risk of sharper domestic adjustments.

Overall, Brazil’s 2026 outlook can best be characterized as stable but constrained. Macroeconomic fundamentals are improving, with inflation converging toward target and external balances supported by a strong trade surplus, yet growth remains limited by tight financial conditions, cautious credit dynamics, and subdued private investment. The durability of this stabilization phase will depend on the pace and credibility of monetary easing, adherence to fiscal rules and budget execution, and sustained policy clarity. For investors, key variables to monitor include the depth of the easing cycle, he effectiveness of credit transmission into lending and investment, fiscal discipline, commodity price volatility, and global demand trends, particularly from China and the United States. Absent a clearer pickup in private investment or a more forceful easing cycle, returns are likely to remain selective and policy-driven rather than broadly cyclical across sectors.

MEXICO

Mexico’s economic landscape for 2026 is characterized by cautious optimism as the nation recovers from a sluggish 0.4% growth rate in 2025. The consensus for real GDP growth in 2026 is 1.3%, though the International Monetary Fund (IMF) offers a slightly more optimistic projection of 1.5%. This rebound is expected to be anchored by Mexico’s competitive position in North America, with roughly 80% of exports to the U.S. remaining duty-free under the USMCA. While growth is bolstered by nearshoring trends, a resilient labor market, and tourism surrounding the soccer World Cup, Mexico faces headwinds from slowing real wage growth and softer remittance inflows from the United States.

Monetary policy is likely to move into a gradual easing cycle, even as Banxico continues to deal with persistent inflation pressures. After ending 2025 with a policy rate of 7%, the consensus among analysts is that the next 25-basis-point interest rate cut will likely occur in May 2026, although some participants anticipate a move as early as February or March. The target policy rate is estimated to reach 6.50% by the end of 2026, a level intended to support credit-sensitive sectors while addressing headline and core inflation, both of which are forecasted at 4% for the year-end. These stagnant inflation levels and lingering cost pressures are expected to limit the central bank’s ability to implement more aggressive cuts.

The outlook for the Mexican peso remains relatively stable, supported by still-elevated real rates and its role in global carry-trade flows. As Banxico gradually eases policy, the peso should stay broadly anchored around current levels, even if there is some mild depreciation over time as rate differentials narrow. At the same time, GDP growth is expected to pick up gradually as lower borrowing costs and continued nearshoring investment support activity. Inflation should continue moderating, with both headline and core trending toward the mid-3% range, allowing for a more balanced and less restrictive policy stance going forward.

ARGENTINA

Argentina enters 2026 following a period of significant macroeconomic adjustment. Fiscal accounts have improved markedly, inflation has declined from recent highs, and monetary policy is transitioning from emergency stabilization toward a more conventional framework.

While macro indicators show progress, the coming year will test the durability of these gains.

Real GDP growth in 2026 is widely projected at around 3%, following a stronger rebound in 2025. Current forecasts from multilateral institutions, private research providers, and market surveys broadly converge in this range. Growth is expected to be driven primarily by investment and exports, particularly in hydrocarbons and mining, where oil, gas, and lithium production continue to expand. However, activity remains uneven across sectors, and the composition of growth is relatively capital-intensive, limiting short-term employment gains.

Inflation is expected to continue declining through 2026, although reported projections differ depending on measurement. Some institutional forecasts point to year-end inflation in the mid-teens, while survey-based estimates place annual inflation closer to the mid-20% range. These differences largely reflect methodological distinctions between year-end and annual average figures rather than divergent views on the direction of prices. Monetary policy remains oriented toward disinflation, with the Central Bank placing greater emphasis on monetary aggregates and liquidity management. Nominal interest rates have declined from prior peaks, but real rates are expected to remain positive, consistent with a restrictive policy stance.

On the fiscal front, authorities achieved a primary surplus in 2025, supported by spending restraint and subsidy reductions. For 2026, maintaining fiscal discipline remains a central objective. Further consolidation may increasingly depend on adjustments to regulated utility tariffs, which would reduce subsidy burdens, alongside revenue performance linked to economic growth. Discussions around asset divestments and privatizations, such as Aerolíneas Argentinas, rail freight operators, public utilities, and other non-strategic government holdings, also form part of the broader fiscal strategy.

Externally, the merchandise trade balance has strengthened, reflecting rising energy and mining exports. Nonetheless, the current account is projected to remain moderately negative due to services deficits and income outflows. Reserve accumulation and access to external financing remain important variables in sustaining macro stability.

Overall, Argentina’s 2026 outlook reflects continued stabilization under a tighter macro framework. Growth is projected to remain positive, inflation is declining, and fiscal discipline is being maintained. The primary uncertainties relate to execution, external financing conditions, and the breadth of the economic recovery across sectors. For investors, the key variables to monitor include the pace of reserve accumulation, the credibility of the exchange-rate regime, sustained fiscal surplus delivery, access to external financing markets, and whether growth broadens beyond energy and mining into employment and domestic demand.

CHILE

Chile enters 2026 with macroeconomic conditions broadly stable and inflation converging back to target. The Central Bank’s December 2025 Monetary Policy Report (IPoM) projects inflation reaching 3% in early 2026 and remaining close to target over the policy horizon, marking the completion of a multi-year disinflation process. In line with this outlook, monetary policy is expected to continue normalizing gradually, with the policy rate moving toward its estimated neutral range of 3.75%–4.75% (nominal) as inflation pressures ease.

Growth in 2026 is projected to remain moderate but steady. The Central Bank revised its forecast range to 2.0%–3.0%, while the OECD projects growth of approximately 2.2%, broadly consistent with output expanding near potential. Investment, particularly in mining and energy, appears to be the principal driver of activity, supported by improving financial conditions and a more favorable external environment. Machinery and equipment imports have strengthened, pointing to a gradual recovery in the investment cycle after several subdued years.

Recent monthly activity data, however, underscore that momentum is not uniform. A weaker-than-expected print toward the end of 2025 highlighted ongoing volatility in short-term indicators, even as forward-looking measures and survey data suggest improved confidence. This divergence suggests that while the medium-term outlook has firmed, near-term fluctuations are likely to persist.

Externally, Chile benefits from relatively supportive terms of trade. Higher copper prices and lower energy import costs provide a favorable backdrop for export performance, reinforcing the role of mining in sustaining growth. The OECD notes that Chile’s trade structure and exemptions for key exports mitigate the direct impact of global tariff measures, though the economy remains sensitive to broader global demand conditions, particularly developments in China and the United States.

Fiscal policy remains anchored within Chile’s structural balance framework, with no major shifts expected in 2026. As inflation stabilizes and interest rates normalize, domestic demand is projected to recover gradually without generating renewed price pressures.

Overall, Chile’s 2026 outlook reflects stability rather than acceleration: inflation anchored near target, monetary policy gradually easing toward neutral, and growth running close to potential. Key uncertainties center on the durability of the mining-led investment cycle and the path of global demand, particularly from China. For investors, copper price volatility, the pace of rate normalization, and fiscal rule adherence remain critical variables. Without stronger momentum in non-mining sectors, performance is likely to be shaped more by sector dispersion and commodity dynamics than by broad cyclical expansion.

VENEZUELA

Venezuela enters 2026 with a very fragile economic outlook. According to the IMF’s latest projections, the country is expected to see negative GDP growth in 2026 and extremely high inflation, reflecting ongoing problems with fiscal policy, and confidence in the currency. Inflation remains the biggest worry on real economic recovery, limiting consumption, investment, and long-term planning. Despite improving momentum and investment opportunities across Latin America, Venezuela continues to underperform the region due to structural challenges and fragile institutions. In short, any economic improvement in 2026 remains highly dependent on oil revenues and policy credibility rather than broad-based growth.

Oil remains the key driver of Venezuela’s external accounts and short-term economic performance. Early 2026 data shows crude exports rebounding sharply, reaching around 800,000 barrels per day in January, compared to roughly 500,000 bpd at the end of 2025, largely due to U.S. licenses allowing controlled exports. However, global oil market conditions limit the upside. The U.S. Energy Information Administration assumes that most sanctions will remain in place through 2027 and notes that any increase in Venezuelan production would likely come into a well-supplied global market, putting pressure on prices. The International Energy Agency also expects global supply to outpace demand in 2026, meaning higher volumes do not necessarily translate into materially higher revenues. As a result, oil production growth alone is unlikely to stabilize Venezuela’s economy without broader reforms.

Foreign investment in Venezuela's oil sector will heavily depend on legal and policy changes currently under discussion. In early 2026, Venezuela approved reforms to its hydrocarbon's framework aimed at giving private and foreign companies more operational flexibility, including greater control over exports and improved commercial terms. These changes are designed to attract capital after years of underinvestment and declining production. At the same time, U.S. sanctions policy remains a major constraint. Recent OFAC guidance clarifies that while certain oil exports and operational activities are allowed under specific licenses, new upstream investment and exploration are still restricted, limiting long-term capital commitments. Until there is clearer visibility on sanctions relief, contract enforcement, and profit repatriation, foreign investors are likely to remain cautious, keeping Venezuela’s recovery path uncertain through 2026.

COLOMBIA

Colombia enters 2026 dealing mainly with fiscal pressure and policy uncertainty, rather than a clear growth story. The government is running tight on fiscal room after higher spending, weaker revenues, and rising debt costs. Credit rating agencies have already flagged this as a concern, downgrading Colombia’s sovereign rating and warning that credibility depends on whether public finances can be stabilized. Inflation is also proving sticky, partly due to higher labor costs following the large minimum wage increase for 2026, which limits how fast interest rates can come down. Overall, the economy is stable, but confidence is fragile and very sensitive to policy signals.

The presidential election in May 2026 is the main factor shaping Colombia’s outlook. Colombia will elect a new president, as Gustavo Petro is not eligible to run again. The race is expected to be fragmented, with left-wing, centrist, and conservative candidates competing in what is likely a two-round election. During this period, investment decisions typically slow, as companies and investors wait for clarity on the next government’s approach to taxes, energy policy, and fiscal management. Credit rating agencies have noted that election uncertainty increases financial risk in 2026.

The election outcome will be important for confidence, regardless of the winner. A continuation of left-leaning policies could imply a stronger state role in certain sectors and continued focus on social spending, which markets may view cautiously from a fiscal perspective. A centrist or center-right outcome could signal greater emphasis on fiscal discipline and private-sector participation, which may support investor's sentiment, though social and political pressures could increase. Overall, 2026 is a transition year for Colombia, where political direction and policy clarity—more than short-term economic conditions—will drive both risks and opportunities.

PANAMA

Panama’s 2026 outlook looks steady and service-driven, with growth mainly coming from logistics (the Canal and ports), trade and finance, construction, and tourism. Growth is expected to be around 4%, with inflation near 2%, which fits Panama’s usual pattern of moderate growth and low inflation under a dollarized system.

The big swing factor is still the Cobre Panamá copper mine, which has been closed since late 2023. The economy has been recovering from that shock, as the initial hit from the closure fades and non-mining sectors continue to grow. That said, the mine remains a political and fiscal issue. Panama has allowed limited maintenance-related activity without officially reopening it, and 2026 is widely seen as a key year for deciding the mine’s longer-term future.

Panama’s 2026 plans center on a record US$11.0 billion in public investment included in the approved 2026 budget, with spending focused on infrastructure and strategic projects to support economic growth. In parallel, the Panama Canal Authority is preparing to launch in 2026 a tender to build and operate two new ports as part of a broader expansion strategy that also includes plans to invest roughly US$8.5 billion over five years to expand canal infrastructure. Urban transport is also a priority, with Metro Line 3 advancing in 2026, including IDB Invest's financing of the underground segment connecting Albrook and Panama Pacifico, aimed at improving mobility for more than 500,000 residents. Overall, 2026 is positioned as a heavy infrastructure year for Panama, spanning logistics, ports, and mass transit expansion

On logistics, the Panama Canal remains a major support for the economy, but also a clear risk. After drought-related restrictions in 2023–2024, Canal traffic has started to recover as water conditions improved in 2025, even if volumes are still not fully back to normal. If drought conditions return, Canal capacity, toll revenues, and broader logistics activity could be affected again, making this one of the main risks to watch in 2026. At the same time, Panama faces a separate logistics-related issue involving CK Hutchison, which operates the Balboa and Cristóbal ports at each end of the Canal. The government has challenged the validity of these port concessions, pushing the dispute into arbitration. While Canal operations themselves are not at risk, a prolonged dispute could delay port investment, raise concerns around contract stability, and weigh on investor confidence. For 2026, the main risk isn’t that logistics operations will stop — it’s more about reputation and legal stability. Since logistics is so important to Panama’s economy, any doubts about contracts or rule of law could hurt investor confidence.

The main concern is public finance and debt. Panama has been adjusting its fiscal rules and deficit targets, but the deficit widened sharply in 2024, and debt levels remain elevated. Credit rating agencies continue to flag this as a risk, with Panama reminded that it remains below investment grade, which affects borrowing costs and refinancing. On the structural side, recent social security reforms help improve long-term liabilities, but they are politically sensitive and will take time to fully implement them.

PARAGUAY

Paraguay enters 2026 as one of the stronger performers in the region, supported by macroeconomic stability, a credible policy framework, and resilient domestic demand. The IMF’s latest review under the Policy Coordination Instrument (PCI) and Resilience and Sustainability Facility (RSF) describes growth as robust and underpinned by sound macro management and ongoing structural reforms.

Real GDP growth in 2026 is expected to remain solid, with most projections clustering between 3.7% and 4.2%. The World Bank forecasts growth moderating toward 3.7% as activity converges toward longer-term trends, while the central bank has indicated growth closer to 4%, supported by construction, agribusiness, and services. Differences across estimates largely reflect assumptions about agricultural output normalization, investment timing, and external demand conditions. Even at the lower end of projections, Paraguay remains positioned above the regional average.

Inflation dynamics have improved materially. The IMF expects inflation to converge toward the 3.5% central bank target in 2026, creating room for cautious monetary normalization. In early 2026, the central bank delivered its first rate cut in nearly two years, lowering the benchmark rate to 5.75% as price pressures stabilized. While policy remains data-dependent, the shift signals confidence that inflation expectations are anchored and that growth can be supported without compromising credibility.

Externally, the current account is expected to weaken modestly in the near term, reflecting higher imports of capital goods and equipment associated with foreign direct investment and infrastructure projects. This widening is driven primarily by capacity expansion rather than consumption pressures, suggesting a cyclical investment effect rather than a structural imbalance. As new projects come online and export volumes increase, external balances are projected to strengthen. The IMF assesses international reserves as remaining above adequacy thresholds, providing a cushion against near-term volatility.

On the fiscal side, Paraguay is expected to return to its legal deficit ceiling of 1.5% of GDP in 2026, consistent with its rules-based consolidation framework. Revenue growth and expenditure discipline remain central to maintaining fiscal credibility, which continues to underpin investor confidence and sovereign stability.

For investors, Paraguay’s 2026 outlook reflects a combination of steady growth, anchored inflation, and institutional continuity. Key variables to monitor include agricultural output volatility, the pace and execution of investment projects, global commodity demand, and adherence to fiscal rules. While downside risks stem primarily from external shocks or weather-related disruptions, baseline conditions point to continued macro stability within a moderate but durable growth trajectory.

PUERTO RICO

Puerto Rico enters 2026 at a clear inflection point. After more than a year of contraction, recent data indicate the downturn may have bottomed. The Puerto Rico Economic Activity Index (PR-EAI) returned to positive year-over-year growth in late 2025, confirming a shift from contraction toward modest expansion. Real GNP has transitioned into a lower-velocity growth phase, signaling stabilization rather than acceleration.

Projections suggest Real GNP growth of roughly +0.4% in 2026, down from +1.2% in 2025, with further moderation expected in 2027. While recession risk has receded, structural constraints continue to limit upside. Infrastructure development and reconstruction efforts remain closely tied to federal fund disbursements, tourism is sensitive to external demand, and labor force participation remains constrained. Demographic decline, energy system inefficiencies, and execution capacity within public agencies continue to cap medium-term growth potential.

This fragility is reflected in the dispersion of forecasts. Some projections anticipate sub-1% growth for several years, while downside scenarios include mild contraction if federal reconstruction spending slows more abruptly than expected. Preliminary Puerto Rico Planning Board (Junta de Planificación, JP) estimates showing approximately 0.4% growth in fiscal 2025 reinforce the view that expansion remains narrow and vulnerable.

For investors, the distinction is now between stabilization and sustained growth. The 2026 base case implies modest expansion with limited cyclical risk, but also limited near-term upside. Key variables to monitor include the pace and continuity of federal fund execution, labor market dynamics and wage pressures, energy reliability, and fiscal policy credibility.

Despite the subdued macro backdrop, financial institutions appear comparatively well positioned. Major banks report strong capital ratios, stable asset quality, and improving earnings visibility, reflecting a transition from defensive balance-sheet repair to disciplined normalization. Market performance dispersion in 2025 suggests returns are increasingly driven by scale, capital strength, and operational execution.

Absent structural reforms that broaden private-sector activity and reduce reliance on non-recurring funds, growth is likely to remain selective. In this environment, investors are likely to favor institutions with durable earnings profiles and capital depth over broad exposure to the local economic cycle.