The World Bank expects Latin America and the Caribbean’s economy to expand 2.3% in 2025, a slight uptick from 2.2% in 2024, with growth projected to reach 2.5% in 2026, the multilateral lender said in a report. Despite this marginal improvement, the region remains the world’s slowest-growing, hobbled by persistent inflation, high debt and a critical deficit in the dynamic businesses needed to spur development.

This meagre performance conceals a patchy outlook among the region's largest economies and underscores deeper structural impediments that continue to deter robust capital formation.

Argentina is undergoing a notable economic rebound, with growth forecast at 4.6% in 2025, decelerating to 4.0% in 2026. The rebound is being driven primarily by a recovery in agricultural exports following the severe 2023 drought.

Conversely, Mexico’s growth is expected to slow to just 0.5% this year before accelerating to 1.4% in 2026, as the impetus from major public infrastructure projects fully wanes and escalating US trade restrictions begin to weigh on external demand. Brazil’s growth is also projected to decelerate to 2.4% in 2025 and 2.2% in 2026, with restrictive monetary policies and limited fiscal support weighing on investment.

The region’s growth trajectory continues to be shaped by persistent structural challenges and a more constrained global environment, leaving it once again among the world’s slower-growing regions.

“Governments in the region have steered their economies through repeated shocks while preserving stability. Now is the time to continue building on that foundation—accelerating reforms to improve the business climate, invest in enabling infrastructure, and mobilise private capital,” said Susana Cordeiro Guerra, Vice President for Latin America and the Caribbean at the World Bank.

The disinflation process slowed as core inflation remained high, largely due to increased labour costs affecting the prices of services. This downward resistance has become more pronounced since the first quarter of 2025, with some economies even showing nascent signs of an uptick in inflation rates.

This complicates the monetary policy landscape. Fiscal deficits persist at stubbornly high levels across Latin America’s largest economies. Despite efforts to address primary deficits, many nations struggle to achieve overall fiscal balance, primarily due to the growing burden of debt service.

The report identifies a central paradox: high entrepreneurial enthusiasm in the region fails to translate into economic dynamism. The roots lie in a deeply rooted inability to “learn how to learn” about new technologies and opportunities.

"Firms want to hire more people, but they cannot get the workers," said William Maloney, chief economist for Latin America and the Caribbean at the World Bank, as quoted by Reuters.

"And it's some combination of the school system and the training system that's not doing that right."

The region appears to get little “kick” out of the entrepreneurial process of experimentation. The vast majority of LAC’s entrepreneurs are found in micro firms, dominated by single-person firms with low education and income who have no employees.

By contrast, a much smaller group of more “modern” or “transformational” firms grow and create jobs. But LAC has a relatively low share of these firms. This does not seem to be the result of a lack of enthusiasm—LAC has a higher share of its tertiary graduates in entrepreneurship than the United States; however, the region has many fewer tertiary graduates.

Even the region’s best-prepared entrepreneurs face challenges that can hinder their growth and job creation. The report focuses on two particularly binding constraints.

The first is shallow financial markets. Over a quarter of firms in LAC report being financially constrained (more than twice the rate of firms in the OECD and the United States). The second is difficulties in hiring qualified workers, affecting firms of all sizes, but especially larger firms.

These two impediments appear to be widespread. In Chile, more than 70% of firms report being limited by either financing, human capital, or both.

The persistent lack of fiscal space underlines the continuing importance of improving the efficiency of government spending, as well as rethinking the ways governments raise revenue. For the foreseeable future, the region’s potential for transformative growth remains hampered by these familiar, yet unresolved, challenges.