The International Monetary Fund (IMF) has marginally revised its economic growth forecasts for Latin America and the Caribbean for 2025, reflecting a slightly more optimistic scenario driven by improved global financial conditions and moderated trade tensions. Despite these revisions, though, the region is still expected to underperform relative to other emerging markets.

According to the IMF’s updated World Economic Outlook presented on July 29, economic growth in Latin America and the Caribbean is now projected at 2.2% in 2025, up from the 2.0% forecast in April. This projection holds steady at 2.4% for 2026. By contrast, emerging and developing economies are expected to grow at a much faster pace, with forecasts of 4.1% in 2025 and 4.0% in 2026.

The upward revision is linked to a combination of factors, including lower-than-expected tariff implementation by the United States and a slight improvement in global financial conditions. According to the IMF’s Chief Economist Pierre-Olivier Gourinchas, the effective average US tariff rate now stands at 17.3%, significantly below the 24.4% estimated in April. This change follows a partial suspension of proposed trade restrictions by the US government, particularly after the tariff escalation announced earlier in the year.

Still, the IMF has stressed that the broader international trade landscape remains unstable. Gourinchas warned that the current trade truce may be temporary and that the failure to establish permanent trade agreements could negatively impact global economic activity. As noted by El Financiero, the IMF cautioned that if suspended tariffs are reinstated or if negotiations stall, the resulting uncertainty could weigh heavily on investment and consumer confidence.

At the national level, Brazil has seen its forecast for economic growth revised upwards. The IMF now expects the Brazilian economy to grow by 2.3% in 2025 and 2.1% in 2026, an increase of 0.3 and 0.1 percentage points respectively from the April forecast. This projection, however, does not factor in the potential impact of the 50% tariff on Brazilian exports set to take effect on August 1.

Yet despite the improved forecast, Brazil continues to face significant structural challenges. As reported by Valor Econômico, the IMF has reiterated the need for stronger fiscal consolidation measures, warning that the country's high public debt levels could be further exposed if global financial conditions deteriorate. Brazil’s monetary policy remains tight, with the Selic interest rate held at 15%, a measure aimed at containing inflation but one that may also constrain domestic demand. Nevertheless, a resilient labour market continues to provide some support to household consumption.

In the case of Mexico, the IMF has revised its 2025 growth forecast to 0.2%, reversing a previous projection of a 0.3% contraction. The forecast for 2026 remains unchanged at 1.4%. According to El Economista, this revision reflects the lesser impact of US tariffs than previously feared, along with slightly improved performance in the manufacturing and services sectors. Reuters added that Mexico's GDP likely grew 0.4% in the second quarter of 2025, up from 0.2% in the first quarter, supported by construction activity and service sector resilience. However, weak agricultural output and ongoing uncertainty regarding US trade policy continue to dampen the overall outlook.

The IMF’s projections position Mexico near the bottom of the global growth rankings for 2025, second only to Germany. The IMF has emphasised that a prolonged lack of clarity around trade policy with the United States could severely hamper investment and slow recovery efforts.

Argentina remains the only large Latin American economy whose growth projections were left unchanged. The IMF continues to expect Argentina's GDP to grow by 5.5% in 2025 and 4.5% in 2026. This sustained forecast reflects the country's continued recovery under the pro-business administration of libertarian President Javier Milei, although the IMF report does not provide further detail on the underlying risks or policy assumptions.

Despite the overall positive revisions, the fund continues to highlight significant downside risks. As reported by Bloomberg Línea, a resurgence in effective tariff rates could weaken global growth, particularly if deadlines for new tariffs expire without the conclusion of substantive trade agreements. The Fund warned that rising fiscal deficits or growing investor risk aversion could lead to higher long-term interest rates and tighter financial conditions globally. This, combined with persistent geopolitical tensions and concerns about economic fragmentation, could fuel renewed volatility in financial markets. The IMF stressed the importance of restoring confidence, predictability and policy credibility to support sustained growth.

Globally, the IMF raised its forecast for 2025 to 3%, up by 0.2 percentage points from its April estimate. The 2026 forecast was also revised upward to 3.1%. This global improvement is partly driven by stronger-than-expected performance in China, now projected to grow by 4.8% in 2025. The Chinese economy benefited from improved first-half performance and reduced US trade barriers.

Despite the overall more positive outlook, the IMF underlined the persistence of significant downside risks. Tensions in Ukraine and the Middle East continue to threaten supply chains and energy markets; these geopolitical uncertainties may fuel price volatility and disrupt commodity flows.

Inflation is forecast to continue declining globally. The IMF estimates that global headline inflation will fall to 4.2% in 2025 and 3.6% in 2026. For emerging markets and developing economies, inflation is expected to decrease to 5.4% in 2025 and 4.5% in 2026. However, the IMF projects that US inflation will remain above target, complicating monetary policy planning.

In its concluding recommendations, the IMF has stressed the importance of structural reforms to bolster economic resilience. The Fund advocates for clear and transparent trade frameworks, reforms in labour markets, improvements in education systems, and increased competition to enhance productivity and support long-term growth. Moreover, the IMF reiterated the importance of safeguarding central bank independence, both in legal and operational terms, as a critical element for ensuring financial stability.

While the IMF’s updated outlook presents a slightly improved scenario for Latin America and the global economy, the underlying fragilities tied to trade policy uncertainty, geopolitical tensions, and fiscal vulnerabilities remain unresolved. The upward revisions may offer a welcome lull, but the region continues to face substantial structural and external challenges.