Latin America At A Turning Point

Analysts expect continued slow growth this year, with inflation moderating. But the region’s biggest economies present a mixed outlook. The US operation to capture and oust Venezuelan President Nicolás Maduro from power in January put Latin America back in the spotlight. But the surprise intervention has not yet translated into larger political or economic shifts in the region. Instead, a familiar, business-as-usual outlook appears to be trending: modest growth; economies linked to external demands for commodities; and persistent structural vulnerabilities tied to public debt, infrastructure, and diminishing but persistent legal and political risk. The silver linings: stabilizing macro indicators and a broad trend toward moderating inflationary pressure. The key question is: Which way will the region head? Sustainable growth and development remain elusive. Upcoming electoral contests in Brazil, Colombia, and Peru add to the backdrop of geopolitical realignment, along with US tariffs and the evolving roles of the US, China, and Europe in the region. Cautious optimism related to economic indicators and innovation remains overshadowed by structural fragility. The baseline expectation is continuity rather than acceleration, with growth projections by the International Monetary Fund and the World Bank converging toward a 2.2%-2.3% average, respectively—positive, but not transformative. Patricia Krause, chief Latin America economist at Coface, a French trade-credit insurance company, expects regional GDP to grow at 2.3% this year. The figure matches forecasts by the UN Economic Commission for Latin America and the Caribbean and is slightly more optimistic than those announced by Goldman Sachs (1.9%) and Fitch Solutions’ BMI (1.7%). “We see a more challenging economic environment for the region,” says Ash Khayami, senior country-risk analys for Latin America Country Risk at BMI, “although growth is broadly in line with prepandemic run rates, going from 2.1% in 2025 to 1.7% in 2026, mostly driven by weaker growth in Brazil and Mexico.” Political volatility remains a central theme in Latin America, and BMI expects a shift toward more conservative or right-of-center governments across the region. “We see a broad turn to right-wing governments in most elections we cover,” says Khayami. “More-conservative governments with stronger fiscal discipline should boost investor sentiment domestically.” According to a recent study by the Eurasia Group political-risk consultancy, while political volatility has long been considered Latin America’s defining risk, the character of that volatility is now increasingly episodic instead of ideologically linked. For financial markets, this is good, since episodic risk can be priced more easily than structural regime changes. Perhaps the most underappreciated regional trend—and success story—is inflation normalization as major Latin economies are returning to or remaining within target ranges. Regional commonalities are only part of the story. The economic outlook for major Latin American economies is varied. Argentina “Argentina is entering an investment-driven cycle supported by commodity exports and lower taxes, which underpins our positive outlook,” says Khayami. “The country risk is down 500 base points, the lowest since 2018. Still, the growth rate is slowing down from 4.3% to a consensus rate of approximately 3.2% this year.” The Central Bank of the Argentine Republic’s hard-currency accumulation and narrowing country-risk spreads are major positives, he adds: “The central bank accumulating over $1 billion in January is a strong signal from an external-accounts perspective.” Brazil Brazil’s growth should slow slightly this year compared to last, says Krause, mainly due to still-elevated interest rates. The market expects the central bank’s Selic benchmark interest rate to begin declining: It’s still projected to end the year at 12.25%, down from its current 15%. Household consumption is expected to support growth, helped by labor market resilience, lower inflation, and tax relief measures. “Trade tensions with the US had some impact on Brazilian exports after tariff measures,” Krause observes, “but the effect was mitigated by exemptions and diversification toward other export markets, including Argentina, Canada, and India.” The country remains a slow-growth anchor economy, according to Khayami’s analysis, saddled by fiscal rigidity and a high tax burden. But a contrary trend may be taking hold, where public spending gradually shrinks as a share of GDP through 2028. Colombia Colombia is currently the oddball among major Latin economies, according to BMI, with fiscal concerns and inflation being particular issues. “As we move toward more conservative presidents, we expect stronger fiscal discipline and more probusiness policy stances to boost investor sentiment,” says Khayami. “Political risk—including relations with the US and also election dynamics—is a major macro driver.” Colombia’s inflation risk is currently driven by domestic policy decisions rather than external factors, Krause argues. “Inflation was above the 3% target at 5.1% in 2025,” she observes. “The expectations worsened following a sharp minimum wage increase of 23% in December. As a result, [the inflation forecast] is revised upwards to 6.4% this year, and the country moved in the opposite direction of its regional peers by raising interest rates.” Mexico Mexico’s economy barely grew in 2025—estimated at between 0.2% and 0.6%—but is expected to expand about 1.5% this year. That affects perception across the region, Khayami observes. “Mexico, because of its relationship with the US, is a pillar of regional foreign direct investment [FDI],” he says, “and there is a lot of uncertainty surrounding that relationship right now. FDI flows into Latin America last year were approximately $160 billion. Mexico captured 25% of that. If Mexico is not doing well, the regional outlook weakens.” Khayami describes the local business environment as “uncertain due to overlapping risk factors, including trade-framework uncertainty, potential security escalation tied to cartel violence, and possible US intervention scenarios.” Peru Peru’s outlook reflects modest macro stability alongside persistent structural weaknesses, according to independent strategic consultant Andrés Castillo. GDP is expected to grow roughly 2.8% in 2026 with inflation near 2% according to a report by BCP banking group, in line with the central bank of Peru’s targets. Fiscal metrics remain comparatively strong, with the deficit projected near 1.8% of GDP and public debt around 36%, according to Trading Economics, low by regional standards. But macro stability masks deeper structural risks, Castillo cautions. “Peru’s economy is supported by mining, agriculture, and fishing; but coca production and now illegal mining have also become significant economic forces,” he says. “Mining alone accounts for about 8.5% of GDP and nearly 64% of exports, underscoring commodity dependence.” Venezuela Venezuela remains Latin America’s elephant in the room. Maduro’s ouster sparked hopes of regime change and a new economic lifeline for Venezuelans. Most analysts at the time expected Washington to immediately initiate a transition phase, opening the door to major oil and energy investments. But so far, only a trickle of those expectations are being realized. Oil production is expected to increase in the short term only if sanctions ease and investment resumes. Khayami says that the path to a more robust energy sector will be long. Jorge Jraissati, a Venezuelan expatriate and president of Economy Inclusion Group, points to two possible scenarios for the country. In the bad-case scenario, reforms exist on paper but political uncertainty persists. In this case, oil recovers modestly but non-oil investment remains minimal, locking the economy into a suboptimal equilibrium, which can deteriorate even more after the next presidential cycle in the US. “In the ‘good’ scenario,” Jraissati says, “US policy sustains pressure for measurable institutional democratization, market opening, and concrete security guarantees that reduce risk pricing. If these conditions are met, foreign capital—especially in energy and infrastructure—will begin to commit rather than speculate.”