The International Monetary Fund sharply cut its growth outlook for Latin America and the Caribbean in 2025, with a steep contraction in Mexico’s growth accounting for nearly the entire region’s slowdown.
In its latest World Economic Outlook released on Tuesday, the fund slashed its regional GDP growth forecast to 2.0% next year, compared with 2.4% in 2024 and a 2.5% forecast made in January.
In its updated report, the IMF said the revisions are mainly due to a “large downgrade to Mexico.”
The organisation cited “weaker-than-expected activity in late 2024 and early 2025, the impact of US-imposed tariffs, related uncertainty, geopolitical tensions, and a tighter financing environment” as reasons for the downgrade.
Mexico in the red
Mexico, the region’s second-largest economy and a major trading partner of the United States, is expected to decrease by 0.3% in 2025.
This indicates a significant departure from the IMF’s previous forecast of a 1.4% expansion.
The country’s tight economic ties with the United States have made it vulnerable to trade policy changes north of the border.
The recent increase in US tariffs, which are already at their highest level in a century, has had a significant impact on Mexican exports.
The contraction is anticipated to cause rippling effects throughout the region. According to analysts, the blow to Mexico’s economy could disrupt supply chains, limit investment flows, and increase uncertainty in neighbouring nations, particularly those with strong economic and migration ties to Mexico.
Mixed outlook across the region
Although Mexico is dragging down the overall forecast, some of its neighbours are set to perform better.
Brazil, Latin America’s biggest economy, is now expected to grow 2.0% in 2025, slightly down from January’s 2.2% forecast, but still with good growth prospects.
Despite ongoing growth, the economy is dealing with challenges like elevated interest rates and subdued investment, which could hinder its momentum.
Argentina, on the other hand, stands out as a rare bright spot. The IMF upgraded its growth forecast to 5.5% from 5.0%, as the country begins to stabilise following years of economic turbulence.
However, the sustainability of this growth remains uncertain, given ongoing fiscal constraints and inflationary pressures.
Elsewhere in the region, Colombia is forecast to grow 2.4%, Chile 2.0%, and Peru 2.8% — all modest figures that reflect a generally cautious outlook amid tight global financial conditions and political uncertainty in several countries.
Central America and the Caribbean: slow but steady
In 2025, Central America is projected to register a growth of 3.8%, down from 3.9% in 2024.
Strong remittance flows, the recovery of tourism, and economic ties with the US are supporting the subregion, but it is affected by the general slowdown.
At the same time, growth in the Caribbean is expected to slow to 4.2% in 2025 from a strong 12.1% expansion in 2024.
The IMF attributed last year’s surge to a post-pandemic tourism rebound, which it noted is now returning to more typical levels.
Global headwinds weigh on the outlook
Latin America’s weaker prognosis is part of a larger global downturn. The IMF also reduced its 2025 global growth forecast to 2.8% from 3.3% in the January report.
That downgrading, however, is largely due to growing US tariffs and tightening financial conditions, which have dampened global commerce and investment.
“The global environment remains challenging,” the IMF cautioned. “Rising protectionism, lingering inflation risks, and geopolitical tensions are clouding the outlook for both advanced and emerging economies.”
As Latin America prepares for a slower 2025, policymakers may confront difficult choices: between maintaining inflation and increasing growth, or between protecting their economies from external shocks and implementing necessary changes.
Mexico, in particular, may face a difficult year navigating a tumultuous and increasingly unpredictable global scene.
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