The economic outlook for Latin America is a complex tapestry, woven with threads of electoral processes, currency fluctuations, trade tensions, and inflationary pressures. According to the latest report by Solunion, a credit insurance company, the region faces a unique set of challenges that could shape its future trajectory. The report highlights a delicate balance between consumption dependence, low investment, and the need to maintain external competitiveness while safeguarding internal purchasing power. This intricate dance is set against the backdrop of persistent inflation, political tensions, and heightened exposure to trade and security risks.
The report's findings reveal a fascinating paradox. While Latin America's growth has been fueled by commodity booms, increased agricultural output, and robust domestic consumption, leading to upward revisions in economic forecasts between 2022 and 2024, the region now faces a potential slowdown. The year 2025 marks a turning point, as the expansion period gives way to a phase of stalled growth.
One of the key factors driving this shift is the interplay between systemic uncertainty and currency appreciation. As regional currencies strengthen against the dollar, internal purchasing power improves, but export competitiveness suffers. This dynamic encourages a surge in imports, potentially displacing local production. Luca Moneta, Senior Economist at Allianz Trade and a shareholder of Solunion, emphasizes this point, noting that the appreciation of regional currencies against the dollar is a double-edged sword.
The report further highlights the impact of accelerated trade operations aimed at avoiding tariffs, adding volatility to trade flows. This volatility, combined with stagnant growth in many economies, poses additional risks for key markets like Mexico and Brazil in 2026. Factors such as slowing consumption, declining remittances, and falling commodity prices could negatively impact economic activity in these countries.
Inflation remains a persistent challenge, despite restrictive monetary policies in several markets. Benchmark interest rates have reached their peak in various countries and may begin to decline, according to central bank communications. However, the average real interest rate in the region remains significantly higher than in the United States, contributing to the strength of local currencies. The report warns that a premature drop in interest rates, coupled with a lack of expansionary measures by the Federal Reserve, could lead to currency weakness and rising inflation, particularly in more dollarized economies like Mexico and Chile.
Adding to the complexity, Latin America's 2025-2026 electoral cycle is unfolding in a context of growing polarization and a lack of clear majorities. This political uncertainty further compounds the economic challenges, impacting investment, especially in consumer-oriented sectors. The rise in international litigation, including cases initiated between countries and investors within the region, exacerbates the situation, particularly in strategic sectors like mining and energy resources.
Despite these challenges, there are glimmers of hope. Argentina is emerging from recession, thanks to economic stabilization measures, although high inflation (projected to reach 24% by the end of 2025) remains a concern. Chile's consumption is rebounding due to copper revaluation and macroeconomic stability, but investment is constrained by peso volatility. Colombia's growth is driven by consumption, but it grapples with low fixed investment, elevated fiscal risk, and political uncertainty.
Peru maintains macroeconomic stability, boasting low inflation and unemployment, but domestic consumption remains weak, and mining output is declining. Ecuador, on the other hand, is showing signs of recovery, with cocoa emerging as a new key sector in primary production. The report underscores the importance of navigating these challenges, emphasizing the need for strategic policies to foster sustainable growth and address the region's unique economic landscape.
