World Bank Forecasts Modest Latin America Growth Amid Climate and Energy Risks

Latin America and the Caribbean faces a delicate economic path ahead, with the World Bank forecasting modest regional growth of 2.2 percent for 2026, alongside downside risks driven by volatile global energy markets and an intensifying El Niño weather cycle. The multilateral development organization upgraded its regional growth outlook by 0.1 percentage point in its biannual Regional Economic Update, while cautioning that persistent macroeconomic hurdles and climate shocks could constrain potential development.

Climate Shocks and Energy Volatility Threaten Regional Stability

The World Bank warned that these warming sea surfaces threaten both agricultural yields and hydropower generation, creating upward pressure on regional food and energy prices.

At the same time, high energy price volatility continues to complicate central bank policies. Susana Cordeiro Guerra, the bank’s regional vice president, noted that the US-Israel war on Iran, launched in late February, has seen global energy prices skyrocket due to Tehran’s retaliatory action. Because oil, natural gas, and fertilizer supplies face ongoing restrictions, central banks across Latin America likely need to keep interest rates higher for longer to combat stubborn inflationary pressures.

Diverging Economic Fortunes Across Latin America

Economic outcomes vary significantly across the vast region. El Salvador, Paraguay, Panama, and the Dominican Republic stand out as strong performers amid the broader economic friction. Meanwhile, Argentina continues its economic recovery following a hyperinflation crisis, with the country expected to post growth for three successive years to 2027—the first time it will have done so in nearly 20 years.

In contrast, the region’s largest economies, Brazil and Mexico, are expanding at or below the regional average. Growth in those nations remains constrained by tight monetary conditions required to continue disinflation, alongside policy uncertainty and fading public investment impulses.

Building New Engines of Productivity Through Technology

To break through current economic ceilings, the World Bank’s report asserts that the region urgently requires new productivity engines, pointing to the transformative potential of artificial intelligence technology. Cordeiro Guerra emphasized that leveraging local talent and resources through consistent policy implementation remains essential.

“The region has significant talent and resources,” Cordeiro Guerra said. “The priority now is to build on these strengths through consistent policies and investment that can raise productivity, create better jobs, and increase incomes.”