A fair wind lifts the forecast
Quarterly LATAM economic outlook.
March 3, 2026
Economic growth in Latin America (Latam) is forecast to slow to 2.1% in 2026 from 2.4% in 2025. That is an upgrade to our forecast, reflecting stronger growth prospects across the region. Inflation is nearing target in most countries. Most central banks are cutting or preparing to cut rates, but differences are emerging. Colombia and Argentina stand out as inflationary exceptions. Upcoming elections in several countries could support near-term growth but raise fiscal, currency and market risks as they will likely delay much-needed fiscal reforms.
- Argentina: Inflation surprised to the upside at the start of the year. Consumer spending is expected to be a headwind to economic growth, which is poised to soften this year.
Brazil: Inflation is easing, which has opened the door to rate cuts as soon as March. Growth is expected to slow despite late-year support from easier policy.
Chile: Inflation returned to target in January; we could see limited easing this year. Business investment and exports tied to copper and lithium should boost growth.
Colombia: Inflation remains well above target. The central bank raised rates by 100 basis points in January; additional tightening is likely, which will hamper growth even as it is expected to be strong this year.
Mexico: Inflation remains sticky; we expect fewer interest rate cuts this year. Uncertainty around United States-Mexico-Canada Agreement (USMCA) renegotiation continues to weigh on growth.
Peru: Inflation is within target as the easing cycle nears an end. Despite political uncertainty curbing investment, growth should remain firm this year.
Uruguay: Inflation is within target; the central bank may cut rates this year. Growth is expected to remain steady: stable but unspectacular.
Venezuela: Inflation remains high and volatile. GDP could contract this year; the outlook remains highly uncertain and heavily dependent upon US policy decisions.
2026 outlook: slower growth
Growth slowed across the region in the second half of 2025. We expect weakness to persist into the first half of this year, followed by recovery in the second half. Brazil and Mexico account for as much as three-fifths of the region’s GDP.
Brazil has one of the highest nominal policy rates in the world, with short-term rates pegged at 15%. The lagged effects of tight monetary policy are eroding purchasing power and restricting consumer spending. The Central Bank of Brazil is expected to begin cutting rates in March, which should support growth later in the year. Do not hold your breath on fiscal reforms ahead of the October elections.
In Mexico, AI-related exports are booming but domestic confidence remains low. Uncertainty over the future of USMCA is restraining investment. Mexico has been one of the largest beneficiaries of friend-shoring, which helped it to surpass China as the largest US trading partner. Recent efforts to crack down on drug cartels will hit tourism, which accounts for over 8% of GDP.
Chile and Colombia are two of the other largest economies in the region. Chile continues to be buoyed by external demand for its commodity exports. US tariffs on copper largely exempt the products Chile exports to the US. Colombia is positioned for strong growth, though tighter monetary policy could begin to squeeze consumers and firms by year-end.
Copper and precious metals prices remain strong, but softer energy, agriculture and iron ore prices pose downside risks to growth across the region. Tight fiscal policy and weaker consumption add to those risks.
Inflation cools unevenly: Outliers are Argentina and Columbia
Inflation continues a gradual downtrend across much of the region. Peru and Chile have reached central bank targets; inflation is poised to cool in Brazil and Mexico, despite short-term price volatility.
The main exceptions are Argentina and Colombia. These two countries alone accounted for the higher inflation forecast this year. Inflation rose in Argentina on more tourism and a change in how energy prices are calculated. Brace for accelerating inflation when energy subsidies are rolled back in the first half of the year.
Argentina’s government recently delayed adopting a new, more accurate inflation gauge. That caused the head of the national statistical agency to resign. That in turn has raised credibility concerns and prompted questions about the government’s willingness to prioritize institutional reforms when they conflict with near-term political objectives.
Accelerating inflation in Colombia stems from a 23% minimum wage increase, which prompted a 100-basis point rate hike in late January. We expect further tightening of at least 100 basis points this year despite the upcoming election, with upside risks to further rate hikes.
Election season across the region
Presidential elections are scheduled in Peru in April, Colombia in May and Brazil in October. The desire to run larger deficits in the short run to boost growth is risky. Currency and bond market volatility could increase if investors lose confidence in the path of adjustment.
Election periods heighten policy uncertainty, as fiscal plans, reform priorities and institutional commitments may shift depending upon the outcome. That uncertainty can lead investors to demand higher risk premia or reduce exposure altogether, amplifying market volatility even before any changes take place.
Peru’s Congress recently impeached the interim president. That is the sixth president in a decade to leave office before the term ended. The result has left investors uncertain, which is taking a toll on investment.
In Chile, investment should strengthen following last November’s election. That reflects lower political and regulatory uncertainty interacting with still-favorable commodity fundamentals.
USMCA renegotiation uncertainty
Uncertainty is rising around the future of the USMCA. Our base case is that the agreement survives with current exemptions. Securing a fully settled, multiyear agreement appears unlikely. More likely are temporary extensions and annual reviews, which hold deal-dependent investment in limbo.
Downside scenarios:
Fragmentation risk: A shift toward bilateral agreements is increasingly plausible. Both Mexico and Canada would be hurt, but Mexico is most vulnerable due to deeper US integration, weaker leverage, fewer diversification options and thinner macro buffers.
Withdrawal risk: One or more parties could exit the agreement, eliminating tariff exemptions. That could add up to six percentage points to the effective tariff rate before any offsetting adjustments by importers.
The US is likely to push for revisions to content rules, especially in autos. Lumber remains a persistent point of friction between the US and Canada. Canada has adopted a more confrontational negotiating stance than Mexico, raising the risk of targeted disputes even if the broader agreement remains intact.
Mexico is most exposed and faces the greatest downside risk from a failure to renegotiate USMCA. The loss of preferential access to the US market would reduce foreign direct investment (FDI) and raise uncertainty about export projects.
Potential red lines for Mexico include:
Oil and gas. The industry was nationalized in 1938. Political backlash followed partial privatization in 2013. Reforms perceived as capitulation to the US could damage support for the ruling party.
US military action on Mexican soil. Historical sensitivities run deep (e.g., Mexico’s territorial losses to the US in the mid-19th century and the US occupation of Veracruz in 1914). Any cross-border military action against alleged drug traffickers would be viewed as a breach of sovereignty. Risks remain elevated due to recent US actions in Venezuela, though they have eased somewhat following the February killing of a major cartel leader.
Latam is headed for slower but still positive growth in 2026, with easing inflation and rate cuts supporting activity in most countries.
Bottom Line
Latam is headed for slower but still positive growth in 2026, with easing inflation and rate cuts supporting activity in most countries. The outlook diverges with Colombia and Argentina the notable inflation exceptions. Elections raise fiscal and market risks. USMCA renegotiation uncertainty remains the key downside risk for Mexico and a potential source of broader regional volatility.
Latin America Outlook Forecast - Q1 2026
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