Latin America and the Caribbean Urged to Reform as Region Faces Slowest Global Growth

The World Bank projects regional GDP growth to decelerate to 2.1% in 2025 and modestly rise to 2.4% in 2026, figures that position Latin America and the Caribbean as the slowest-growing region globally.

As the global economic climate grows increasingly volatile, Latin America and the Caribbean (LAC) are being urged to undertake comprehensive and transformative economic reforms to navigate what the World Bank identifies as a “highly uncertain” global landscape. The advance chapter of the Latin America and the Caribbean Economic Review (LACER) presents a sobering analysis of the region's economic outlook, emphasizing the critical need for policy recalibration, institutional strengthening, and strategic investments.

Bleak Growth Prospects in a Shifting Global Context

The World Bank projects regional GDP growth to decelerate to 2.1% in 2025 and modestly rise to 2.4% in 2026, figures that position Latin America and the Caribbean as the slowest-growing region globally. This subdued forecast stems from a combination of low investment rates, rising debt burdens, and a deteriorating external environment marked by geopolitical shifts, inflationary pressures, and changing trade dynamics.

Carlos Felipe Jaramillo, the World Bank’s Vice President for Latin America and the Caribbean, emphasized that the economic status quo is no longer tenable. “Countries must recalibrate their strategies and advance bold and practical reforms that boost productivity and competitiveness, while tackling long-standing gaps in infrastructure, education, trade, and governance,” Jaramillo stated. “Only through such a strategic pivot can the region ensure job creation and improved livelihoods for its people.”

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Debt, Deficits, and the Policy Dilemma

Despite encouraging signs of declining inflation in some LAC countries, fiscal imbalances remain acute. The region’s average debt-to-GDP ratio is projected to reach 63.3% in 2024, a significant jump from 59.4% in 2019. This increasing debt burden limits the fiscal space for governments to respond proactively to future shocks or invest in long-term development.

In tandem, persistently high interest rates in advanced economies—a response to lingering inflation—could restrict LAC central banks' ability to lower their own rates. This situation complicates monetary policy, particularly as external financing costs remain elevated and capital flows become more volatile.

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Trade, Technology, and the Productivity Puzzle

William Maloney, Chief Economist for the LAC region at the World Bank, noted that foreign direct investment (FDI) and trade remain vital engines for growth—particularly as global demand patterns evolve. However, market access concerns, such as trade restrictions and uncertainties surrounding nearshoring opportunities, introduce further complexity.

“Access to technology and exploiting scale economies dictate that trade and FDI remain essential to accelerating growth in Latin America and the Caribbean, even in uncertain times,” Maloney stated. He highlighted the importance of diversifying trade partners, expanding service exports, and identifying competitive nearshoring niches, especially in light of declining growth in China and cuts to international development assistance.

Yet, realizing these opportunities depends on improvements “behind the border.” This includes reforms in education systems, labor market flexibility, regulatory efficiency, and innovation ecosystems. Without these structural changes, the region risks missing out on the growth potential from global supply chain realignments.

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Path Forward: Bold but Balanced Reforms

For Latin America and the Caribbean, economic transformation is not merely a choice—it is a necessity. The World Bank underscores several critical areas for immediate action:

• Enhancing Infrastructure: Bridging gaps in transport, energy, and digital infrastructure to facilitate commerce and connectivity.

• Investing in Human Capital: Strengthening education and health systems to build a competitive, resilient workforce.

• Improving Governance and Rule of Law: Streamlining bureaucracy and reducing corruption to attract and retain investment.

• Supporting Innovation and Entrepreneurship: Creating environments conducive to new business formation and tech-driven growth.

The report stresses that incremental change will no longer suffice. Instead, the region needs coordinated, sustained, and inclusive reform efforts, backed by political will and regional cooperation. In doing so, countries can transition from economic fragility to resilience, ensuring better futures for their citizens.

 

The LAC region stands at a defining moment. Global uncertainties may be rising, but with the right mix of visionary leadership, smart policies, and inclusive development, Latin America and the Caribbean can rewrite their growth narrative. The time for action, the World Bank warns, is now.