Latin American and Caribbean economies are projected to grow by an average of 2.1 per cent in 2026, broadly in line with their long-run average, according to the Inter-American Development Bank’s (IDB) new macroeconomic report.

The analysis underscores the resilience of the region’s economies and finds that accelerating inclusive growth will demand sound macroeconomic frameworks and bold structural reforms, alongside efforts to harness opportunities in technology and commodities, amid growing global risks.

The projection reflects a gradual slowdown compared to the region’s 2.2 per cent growth in 2025.

According to the report, regional labour markets have sustained low unemployment, inflation has been largely contained, and investor confidence has improved, as reflected in historically low borrowing costs, with the median sovereign spread falling to 209 basis points at the end of 2025, down from 268 in 2019.

Despite these gains, growth remains insufficient to close income gaps, public-debt levels are high, and higher interest payments are placing increasing pressure on public finances and external accounts.

“Latin America and the Caribbean navigated global uncertainty with resilience, supported by fiscal and monetary frameworks that have helped contain inflation and sustain macroeconomic stability,” said Laura Alfaro Maykall, IDB chief economist and economic counsellor. “Looking ahead, countries have to accelerate productivity-led growth, strengthen public finances, and seize new opportunities from digitalisation, artificial intelligence, and the energy to raise living standards and build more resilient and inclusive economies.” 

Opportunities in critical minerals

The region is uniquely positioned to turn rapid technological advances and global energy needs into engines of growth, the report underscores. Both trends rely heavily on critical minerals, which the region holds in abundance.

A striking example is lithium; global demand is projected to rise between 470 per cent and 800 per cent by 2050. With roughly half of global lithium resources, about 35 per cent of global copper reserves, and more than 20 per cent of rare-earth reserves, the region is well positioned to become a strategic supplier in the value chains of the future.

The report cautions, however, that natural wealth does not guarantee lasting development. Capturing the opportunity in critical minerals will require stronger institutions, predictable rules, diverse and reliable energy, robust environmental governance, and disciplined fiscal frameworks.

Improvement in labour market conditions

Labour-market conditions improved markedly in 2025, with unemployment rates falling in most countries between June 2024 and June 2025, and joblessness nearing its lowest levels in recent years. While women’s participation in the labour force has surged, growth remains constrained by modest productivity gains and demographic shifts that are slowing the expansion of the working-age population.

As a result, sustaining growth will increasingly depend on productivity gains and upgrading skills. Expanding access to digital training and supporting workers’ transitions into higher-productivity occupations will be essential as labour markets evolve. The report highlights skills related to artificial intelligence as the fastest-growing in the region, with job postings referencing AI rising sharply by mid-2025, to seven per cent of total vacancies.

Fiscal policy is entering a challenging phase, requiring urgent strengthening of fundamentals. Public debt remains above pre-2020 benchmarks, interest payments are rising, and fiscal consolidation has weakened.

Average public debt in the region stands at 59 per cent of GDP, with projections ranging between 57 per cent and 66 per cent of GDP by 2028 under baseline and stress scenarios. Among policy actions, the report highlights the potential of digitalisation to boost tax collection when paired with credible enforcement strategies.

While inflation has largely returned to target across much of the region, higher global interest rates, shifting expectations, and the growing use of digital and foreign-currency assets are reshaping the monetary-policy landscape. The report emphasises the importance of reaching a neutral monetary stance — neither stimulating nor restraining economic activity — while developing flexible tools to absorb external shocks.

The report concludes that policies promoting stronger competition, improved skills formation, deeper regional integration, and the development of more sophisticated regional value chains can significantly boost productivity — and should remain at the centre of Latin America and the Caribbean’s policy agendas.