Economic Growth in Latin America and the Caribbean
The United Nations’ Economic Commission for Latin America and the Caribbean has released its Preliminary Overview of the Economies of Latin America and the Caribbean 2025 report. According to the report, Latin America and the Caribbean’s gross domestic product will grow 2.4% in 2025 and 2.3% in 2026.
Low Growth Forecast
If these forecasts are borne out, the LAC region will accumulate four consecutive years of low growth, with average annual growth of only 2.3%. The commission indicated that the region continues along a path of low growth, forecasting that the main sources that have sustained economic activity in recent years will lose momentum in 2026. Consumption has been the main driver of economic activity, accounting for more than half of the growth in regional GDP, but this contribution will decrease in 2025 and 2026 as a result of less dynamic external demand and lower employment growth.
Regional Variations
The report points to differences in economic activity trajectories at the subregional level. The Caribbean, which includes Puerto Rico, is expected to grow 5.5% in 2025 and 8.2% in 2026, supported by significant growth in oil activity in Guyana, the normalization of tourism, and improved performance in the construction sector. However, the subregion is highly exposed to natural disasters, which constrains its capacity for growth. South America’s economy will grow 2.9% in 2025, driven by recoveries in Argentina, Bolivia, and Ecuador after their economies contracted in 2024, but that expansion is expected to decelerate to 2.4% next year. Central America is projected to expand 2.6% in 2025, affected by weaker demand from the U.S., and improve to 3% in 2026, although vulnerabilities remain related to trade, remittances, access to financing, and exposure to climate change.
Employment and Inflation
Employment growth will lose momentum, slowing from 2% in 2024 to 1.5% in 2025 and 1.3% in 2026. Median regional inflation is expected to reach 3% in 2026, above the 2.4% estimated for the end of 2025 but below levels seen during the inflationary shocks of 2021-2022 and around targets set by central banks in the region.
Challenges and Risks
The report warned that 2026’s outlook will be subject to multiple external and internal risks, including dynamics in global GDP growth and trade, as well as U.S. monetary policy, which has been more expansionary, and possible changes to the country’s economic and trade policy. Uncertainty in international financial markets and possible volatility in external financing flows will also affect 2026 regional growth.
Need for Policy Frameworks
Given this outlook, the commission stressed the urgency of strengthening and expanding macroeconomic policy space. "In a global environment transformed by economic fragmentation, climate change, demographic shifts, and a fast-paced technological revolution, countries need policy frameworks that are capable of reducing vulnerabilities while simultaneously mobilizing resources for a productive transformation," the commission said.
Comparison with Other Forecasts
In October, the World Bank updated its forecast for the region, increasing it to 2.5% in 2026 from June’s forecast of 2.4%. Its forecast for this year was unchanged at 2.3%. The Organisation for Economic Co-operation and Development pointed to challenges such as lower spending on productive development policies, versus 3% in OECD countries, and tax expenditures that absorb significant resources, averaging 4% of GDP in the region.
Challenges in the Region
More than 55% of workers are employed informally, with only 2.1% working in medium- or high-technology sectors, well below the OECD average of 7.7%. Limited skills development and weak innovation systems make it harder for the region to transition to higher value-added activities.
Conclusion
In conclusion, the economic growth forecast for Latin America and the Caribbean is expected to be low, with the region facing various challenges and risks. The commission’s report highlights the need for strengthening and expanding macroeconomic policy space to reduce vulnerabilities and mobilize resources for a productive transformation. The region must address its challenges, including low spending on productive development policies, tax expenditures, and limited skills development, to achieve higher value-added activities and improve its economic growth.
