World Bank nudges up Latin America growth forecast to 2.3% but warns of skills shortage
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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.
Political and fuel crises push Bolivia into lonely Latin American recession
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Bolivia faces one of its most severe economic crises in decades, with the World Bank projecting a three-year recession stretching until 2027. The lender’s latest report predicts contractions of –0.5% in 2025, –1.1% in 2026, and –1.5% in 2027, making Bolivia and violence-ridden Haiti the only economies in Latin America expected to shrink in the coming years. The forecast starkly contrasts with President Luis Arce’s 2025 state budget, which anticipates growth of 3.51%.
The downturn marks the definitive end of Bolivia’s commodities-driven boom. The collapse of the hydrocarbon industry, long the main source of fiscal revenue, has left the state struggling to maintain its costly fuel subsidies. As of this week, the state oil company YPFB confirmed it can meet only 70–80% of domestic demand for diesel and petrol due to a shortage of dollars required for imports.
YPFB President Armin Dorgathen said that unless the Ministry of Economy releases sufficient funds for weekly imports, estimated at around $60mn, the country will continue to suffer from fuel shortages. These deficits have triggered nationwide queues at petrol stations and pushed the Confederation of Drivers’ Unions to declare a state of emergency.
The government blames the crisis on external factors such as the pandemic, the war in Ukraine and internal political blockades. Economy Minister Marcelo Montenegro insists there is “stability in several sectors”, denying that Arce is leaving behind a “broken” economy. Yet independent economists paint a different picture. Alberto Bonadona told EFE that Arce “has taken Bolivia to the gates of hell”, while political analyst Franklin Pareja described the leftist MAS administration as leaving the state “practically bankrupt and looted”.
The depth of the crisis exposes chronic structural flaws. Bolivia imports 90% of its diesel and more than half its petrol, selling them below market prices through state subsidies. Meanwhile, its reserves of natural gas, once the country’s export engine, have plunged from 22.2bn cubic metres in 2014 to just 11.9bn in 2024, according to government data.
Arce’s flagship policy of “industrialisation” has also failed to deliver. Major projects, including lithium extraction plants and urea or sugar production facilities, remain paralysed or incomplete. Contracts with Chinese and Russian firms to develop lithium resources through direct extraction technology (DLE) are stalled in parliament amid court rulings and internal divisions within the ruling Movimiento al Socialismo (MAS).
The government’s “import substitution” strategy, promoted as a path toward self-sufficiency, has been criticised for serving political patronage rather than genuine development. “These factories were built for electoral propaganda, not productivity,” Bonadona told Infobae.
The economic collapse now dominates the agenda ahead of the October 19 presidential runoff, which marks the end of two decades of uninterrupted rule by the hard-left MAS party founded by former president Evo Morales. The contest pits centrist senator Rodrigo Paz Pereira against conservative former president Jorge “Tuto” Quiroga (2001–2002). Both have pledged to reverse the economic deterioration, but through radically different approaches.
Quiroga, candidate of the Alianza Libre, told El Deber he will seek $12bn in international financing from the IMF, World Bank, IDB, CAF and other lenders. The programme would fund immediate fuel imports, stabilise inflation, and inject much-needed US dollars into the domestic market. “We will guarantee from the first day that there are no more queues for petrol and diesel,” he said, claiming the support of the United States for his recovery plan.
Rodrigo Paz, leading the Partido Demócrata Cristiano (PDC), advocates a moderate course aimed at attracting disillusioned MAS voters. According to The Independent, Paz rejects IMF austerity plans and instead proposes “capitalism for all”, promising to retain social welfare programmes while phasing out fuel subsidies except for vulnerable sectors. Critics argue, however, that his economic agenda remains vague and that his alliance with vice-presidential candidate Edman Lara, a populist ex-police officer, adds uncertainty to his campaign.
The World Bank’s regional report places Bolivia’s crisis within a broader slowdown across Latin America and the Caribbean, where growth is expected to reach just 2.3% in 2025 and 2.5% in 2026, the slowest globally. While Argentina is forecast to rebound by 4.6%, Peru and Chile are expected to see moderate expansion. Bolivia stands out as an outlier, forecasted to contract.
According to World Bank economist William Maloney, Latin America’s enduring weakness stems from “shallow financial markets and shortages of skilled labour”, which prevent firms from expanding. These structural shortcomings, combined with Bolivia’s deep-rooted political turmoil and fiscal mismanagement, suggest that any future administration will inherit a fragile state with limited capacity for recovery.
As Arce prepares to step down, the next government will face a near-impossible task: stabilising an economy drained of reserves, paralysed by political division and dependent on a vanishing gas industry while convincing an increasingly sceptical public that recovery is still possible.
Displaced people from the Yazidi minority flee violence in the Iraqi town of Sinjar at the Iraqi-Syrian border crossing in Fishkhabour on 13 August, 2014. © Reuters - Youssef Boudlal
