The World Bank has trimmed its growth forecasts for Latin America and the Caribbean for both 2026 and 2027, blaming the inflationary and monetary fallout from the Middle East conflict, even as a ceasefire deal struck between Washington and Tehran this week raises hopes that the worst of the oil price shock may have passed.

The Strait of Hormuz had been effectively closed for more than three months, squeezing commodity supplies and pushing energy prices sharply higher. Economists have cautioned, however, that the damage to the region's economies will take time to unwind.

The World Bank now expects the region to expand 2.2% this year, down from a prior estimate of 2.3%, and 2.5% in 2027, a tenth of a percentage point lower than its earlier projection. The revisions, published in the June Global Economic Prospects report, accompanied a reduction in its global growth forecast for 2026 to 2.5%, from 2.6%.

"Economic conditions in Latin America and the Caribbean this year have been shaped by the conflict in the Middle East and heightened global uncertainty. Higher and more volatile global energy prices have raised inflation in some cases, leading to tighter monetary policy," the World Bank said.

The outlook is modestly gloomier than the IMF's April assessment. The fund raised its 2026 growth forecast for the region by a tenth of a point to 2.3% at its spring meetings, and held its 2027 projection steady at 2.7%. The divergence reflects different baseline assumptions about the conflict's duration and differing weights given to structural constraints in the region's larger economies.

Brazil, Mexico dragged by monetary tightening

The World Bank cut its forecast for Brazil, the region's largest economy, to 1.9% growth in 2026, down from a prior estimate of 2.0%, with a steeper downgrade for 2027, now 2.0% against a previous 2.3%. The revision reflects expectations of slower private consumption growth, compounded by persistently high interest rates and lingering inflationary pressures.

The bank projects a gradual recovery as continued disinflation eventually allows monetary easing to take hold. The IMF, for its part, revised Brazil's 2026 forecast upward to 1.9%, citing strong momentum from the second half of last year and the country's large share of renewable energy as mitigating factors.

Mexico's prospects remain subdued, with the World Bank projecting GDP growth of 1.3% this year and 1.7% in 2027, with the latter figure revised down marginally from 1.8%. The bank said the country's broadly balanced energy trade insulates it from the oil price shock to a greater extent than regional peers, but that its outlook hinges on domestic demand and trade relations with the United States, particularly the looming renegotiation of the USMCA. Growth is expected to pick up as investment recovers and external demand stabilises.

Argentina's downgrade the steepest

Argentina suffered the largest forecast reduction among the region's major economies, despite retaining the fastest projected growth rate. The World Bank lowered its 2026 estimate to 3.6%, from 4.0%, and trimmed its 2027 projection by a similar margin to 3.7%.

"In Argentina, growth is projected to remain relatively strong and roughly steady, at 3.6% over 2026-28, supported by exports but constrained by tight monetary and fiscal policies domestically," the institution said.

The IMF put Argentina's 2026 growth at 3.5%, a downgrade of half a percentage point, attributing the revision to weaker momentum in the second half of last year and the inflation-driven erosion of real incomes — factors that offset gains from improved commodity export prices.

Mixed signals for the Andean economies

Colombia faces a more difficult conjuncture. The World Bank cut its growth forecast to 2.3% in 2026 and 2.4% in 2027, down from prior estimates of 2.6% and 2.8% respectively. Higher oil prices are supporting export revenues, the bank noted, but inflationary pressures are delaying rate cuts. The IMF projected Colombia would expand 2.3% in 2026 and 2.5% in 2027, roughly in line with the World Bank's near-term view but more optimistic for the following year.

Chile and Peru present a more favourable picture. The World Bank nudged Chile's 2026 forecast down slightly to 2.1% but revised its 2027 projection up to 2.5%, from 2.1%, while Peru's near-term outlook was upgraded to 2.7% in 2026, from 2.5%.

Both countries stand to benefit from elevated metals prices supporting export earnings and fiscal revenues, the bank said, and core inflation has remained close to target, allowing monetary easing to continue. The IMF had been more bullish on both economies in April, projecting Chile at 2.4% and Peru at 2.8% for 2026.

Structural constraints cloud medium-term outlook

Beyond the cyclical pressures linked to the conflict, the World Bank identified longer-running structural weaknesses as a brake on the region's potential. Persistent informality, weak formal job creation and modest income gains continue to weigh on productivity and consumption, limiting the extent to which growth translates into poverty reduction.

Tight fiscal positions compound the problem: elevated debt levels and heavy interest burdens reduce the scope for countercyclical spending, leaving economies more exposed to external shocks.

On the trade side, the bank pointed to some offsetting factors. Lower US tariffs have modestly improved the near-term export outlook for the region, while the provisional entry into force of the long-negotiated EU-Mercosur trade agreement has expanded market access and reduced uncertainty for exporters in the bloc's member states.

The Caribbean sub-region is expected to prove relatively resilient, with growth projected at 2.5% in 2026 and an average of around 3.9% in 2027–28, supported by a recovery in tourism and robust domestic demand.