Latin America and the Caribbean is expected to see slower economic growth in 2026, with the World Bank projecting the region to expand by 2.1%, down from 2.4% in 2025. Growth is expected to improve slightly to 2.4% in 2027, but the overall outlook remains subdued. According to the latest regional economic update, the slowdown reflects a difficult macroeconomic environment shaped by high borrowing costs, weak external demand, and inflationary pressures linked to geopolitical uncertainty, all of which are weighing on private investment and limiting job creation.
While household consumption continues to support economic activity, its contribution remains modest and is not enough to offset broader weaknesses. Investment remains especially weak as businesses delay spending amid expectations that global interest rates will stay elevated, growth in advanced economies and China will remain slower, and trade policy uncertainty will persist. The report also notes that geopolitical tensions, including the conflict in the Middle East, have worsened the situation by pushing up energy prices and adding inflation risks that could postpone interest rate cuts. These pressures are hitting governments that already face tight fiscal constraints, with public debt still high by historical standards and rising interest payments reducing the space for infrastructure and social spending.
The World Bank stresses that rebuilding business confidence, unlocking private investment, and raising productivity will be critical if the region is to achieve stronger and more inclusive growth. Despite current challenges, Latin America and the Caribbean has major economic strengths that could support a stronger recovery. These include around half of the world’s lithium reserves, roughly one-third of global copper reserves, a relatively clean energy mix, and growing reform momentum in several countries. The report suggests that these advantages could help the region create quality jobs and strengthen long-term competitiveness if they are backed by the right policy choices.
The report also examines the growing interest in industrial policy across the region as governments look for ways to capitalize on these assets. However, it argues that such policies will only succeed if countries first strengthen the foundations needed for sustainable growth. According to the World Bank, industrial or productivity strategies must be supported by stronger skills development, openness to trade, access to finance, and effective institutions that allow firms to innovate, compete, and expand.
To build this foundation, the report recommends closing skills gaps through better education, technical training, and management development, while also improving access to finance and strengthening insolvency frameworks so businesses can invest and grow more confidently. It also calls for deeper trade integration to improve competitiveness and encourage technology adoption, as well as stronger institutional capacity so governments can design smarter policies, identify market failures, adjust strategies when needed, and deliver lasting results.
