Latin America at a turning point

The US campaign to capture and oust Venezuelan President Nicolas Maduro from power in January put Latin America back in the spotlight. But the surprise intervention has not yet translated into major political or economic change in the region.

Instead, a familiar, business-as-usual approach appears to be in play: modest growth; Economies linked to external demands for goods; and persistent structural weaknesses related to public debt, infrastructure and declining but persistent legal and political risks. Ray of hope: Stabilizing macro indicators and a broad trend toward easing inflation pressures. The important question is, where will the region go?

Sustained growth and development remains elusive. The upcoming electoral contests in Brazil, Colombia and Peru add to the backdrop of US tariffs and the emerging roles of the US, China and Europe in the region, as well as geopolitical realignment. Cautious optimism regarding economic indicators and innovation remains tempered by structural weakness.

The baseline expectation is continuation rather than acceleration, with growth projections by the International Monetary Fund and the World Bank moving towards an average of 2.2%-2.3% respectively – positive, but not transformative.

Patricia Cros, chief Latin American economist at French trade-credit insurer Coface, expects regional gross domestic product to grow 2.3% this year. This figure matches the forecasts of the United Nations Economic Commission for Latin America and the Caribbean and is slightly more optimistic than the figures announced by Goldman Sachs (1.9%) and Fitch Solutions’ BMI (1.7%).

“We see a more challenging economic environment for the region,” says Aish Khayami, senior country-risk analyst for Latin America Country Risk at BMI, “although growth is broadly in line with pre-pandemic rates, rising from 2.1% in 2025 to 1.7% in 2026, driven mostly by weaker growth in Brazil and Mexico.”

Political instability remains a central theme in Latin America, and BMI expects a shift toward more conservative or right-wing central governments throughout the region. “We see a broad shift toward right-wing governments in most of the polls 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 instability has long been considered Latin America’s defining risk, the character of that instability has now become increasingly episodic rather than ideologically linked. For financial markets, this is good, because episodic risk can be priced in more easily than structural regime changes.

Perhaps the most underappreciated regional trend—and success story—is the normalization of inflation as major Latin economies return to or remain within the target range.

Regional similarities are only part of the story. The economic outlook for the major Latin American economies is diverse.

argentina

“Argentina is entering an investment-driven cycle supported by commodity exports and low taxes, which underlines our positive outlook,” says Khayami. “The country risk is down 500 basis points, the lowest since 2018. Still, growth this year is coming in at around the consensus rate of 3.2%, down from 4.3%.”

The Argentine Republic’s Central Bank’s hard-currency accumulation and narrowing of country-risk spreads are key positives, he says: “The Central Bank’s accumulation of more than $1 billion in January is a strong signal from an external-accounts perspective.”

brazil

Krause says Brazil’s growth should be slightly slower this year than last year, largely due to still-elevated interest rates. The market expects the central bank’s Selic benchmark interest rate to begin falling: it is still projected to end the year at 12.25%, down from its current level of 15%. Domestic consumption is expected to support growth, helped by labor market flexibility, low inflation and tax relief measures. “Trade tensions with the US following the tariff measures had some impact on Brazilian exports,” says Cross, “but the impact was mitigated by relaxation and diversification towards other export markets, including Argentina, Canada and India.”

According to Khayami’s analysis, the country remains a slow-growing major economy due to fiscal stringency and high tax burden. But an opposite trend is taking hold, where public expenditure as a share of GDP is gradually declining by 2028.

Colombia

According to BMI, Colombia is currently one of the most vulnerable countries among the major Latin economies, with fiscal concerns and inflation being particular issues.

“As we move toward more conservative presidents, we expect stronger fiscal discipline and a more pro-business policy stance to boost investor sentiment,” Khayami says. “Political risk – including relations with the US and electoral dynamics – is a key macro driver.”

Cross argues that Colombia’s inflation risk is currently driven by domestic policy decisions rather than external factors. “Inflation was 5.1% in 2025, above the 3% target,” she says. “Expectations were dashed after a sharp 23% increase in the minimum wage in December. As a result, [the inflation forecast] This year it has been revised up to 6.4%, and the country has moved in the opposite direction to its regional peers by raising interest rates.

Mexico

Mexico’s economy will barely grow in 2025 – projected between 0.2% and 0.6% – but is expected to grow by about 1.5% this year. Khayami believes this affects perception across the region.

“Mexico, because of its relations with the US, is a pillar of regional foreign direct investment [FDI]“And there’s a lot of uncertainty about that relationship right now,” he says. Last year, FDI inflows into Latin America were approximately $160 billion. Mexico captured 25% of it. “If Mexico is not performing well, the regional outlook becomes weak.”

Khayami described the local business environment as “uncertain due to overlapping risk factors including trade-structure uncertainty, potential security escalation associated with cartel violence, and potential US intervention scenarios”.

peru

According to independent strategic advisor Andres Castillo, Peru’s outlook reflects persistent structural weaknesses as well as modest macro stability. According to a report from BCP Banking Group, GDP is expected to grow by about 2.8% in 2026 and inflation near 2%, in line with Peru’s central bank’s goals. According to Trading Economics, fiscal metrics remain comparatively strong, with the deficit estimated at 1.8% of GDP and public debt at around 36%, which is low by regional standards.

But macro stability hides deeper structural risks, Castillo warns. He says, “Peru’s economy is supported by mining, agriculture and fishing; but coca production and now illegal mining have also become important economic forces.” “Mining alone accounts for about 8.5% of GDP and about 64% of exports, underscoring commodity dependence.”

Venezuela

Venezuela remains Latin America’s elephant in the room.

Maduro’s ouster has raised hopes for regime change and a new economic lifeline for Venezuelans. Most analysts at the time expected Washington to immediately begin a transition phase, opening the door to major oil and energy investments. But so far, only a sliver of those hopes are being realized. Oil production is expected to increase in the short term only as restrictions are eased and investment resumes. Khayami says the road to a more robust energy sector will be a long one.

Jorge Jaraisati, a Venezuelan expatriate and president of the Economy Inclusion Group, points to two possible scenarios for the country. In the worst case scenario, reforms exist on paper but political uncertainty persists. In this case, oil recovers modestly but non-oil investment remains minimal, leaving the economy locked in a sub-optimal equilibrium, which may worsen after the next presidential cycle in the US.

“In the ‘good’ scenario,” Jarisati says, “US policy continues to press for measurable institutional democratization, market opening, and solid security guarantees that reduce risk pricing. If these conditions are met, foreign capital – particularly in energy and infrastructure – will begin to make commitments rather than speculate.”