Latin America and the Caribbean will grow 2.2% this year, slightly below the 2.4% recorded in 2025, the World Bank said on October 6. The bank pointed out that a handful of countries pursuing durable policy reforms are expanding at nearly twice the regional pace, while the two largest economies lag behind.

In its Latin America and the Caribbean Economic Update, the lender said El Salvador, Paraguay, Panama and the Dominican Republic were consistently growing faster than 3-4%, attracting more investment and greater market confidence. Brazil and Mexico are set to expand by just 2.1% and 1.4%, respectively.

"Latin America and the Caribbean has the potential to achieve stronger and more ambitious growth. Countries that have maintained sound macroeconomic frameworks, strengthened institutions, and advanced reforms are demonstrating that stronger growth is possible," said Susana Cordeiro Guerra, the World Bank's vice president for the region.

"The region has significant talent and resources. The priority now is to build on these strengths through consistent policies and investment that can raise productivity, create better jobs, and increase incomes," she added.

Paraguay is forecast to grow 4.7% and El Salvador 4.5%, with both benefiting from better security conditions, fiscal consolidation and strong private investment, the bank said. Growth is projected at 4.7% in the Dominican Republic and 4.2% in Panama.

Carlos Rodriguez-Castelan, the World Bank's acting chief economist for the region, told EFE that tax reforms in the Dominican Republic had supported manufacturing, tourism and mining. He said El Salvador had gained from a mix of public security policies, the removal of regulatory hurdles and efforts to attract foreign investment.

He said Panama's removal from the European Union's list of non-cooperative tax jurisdictions had been key to drawing investment, and pointed to Paraguay's energy mix and the resilience of its farm exports.

Argentina's growth is expected to more than halve to 2.1% from 4.5% in 2025. Even so, the World Bank said the country was on course to expand for three straight years between 2025 and 2027 for the first time in nearly two decades. It credited fiscal adjustment, tax reforms and greater economic openness under President Javier Milei's government.

The bank said Brazil and Mexico were being held back by the tight monetary conditions required to sustain disinflation, policy uncertainty and fading momentum in public investment. It warned that weak growth was limiting the region's ability to reduce poverty and informality.

The forecast marks a downgrade from the World Bank's October 2025 update, which had projected regional growth of 2.5% for 2026. The region slightly outperformed that report's estimate for last year, expanding 2.4% against a projected 2.3%. At the time, the lender ranked Latin America and the Caribbean among the world's slowest-growing regions and blamed long-standing structural weaknesses.

Risks tilted to the downside

The World Bank said risks to the outlook were skewed to the downside. Volatile energy prices could stall progress on inflation and lead central banks to keep borrowing costs high for longer, restricting credit and investment. Heavy debt and interest payments continue to squeeze public spending.

Global energy prices have surged since the United States and Israel launched a war against Iran in late February.

The bank also flagged the El Niño weather phenomenon as a threat to agriculture and hydropower that could drive up food and energy prices. Rodriguez-Castelan said the current episode was expected to be particularly severe.

"Latin America's energy matrix depends almost 50% on hydroelectric power. Therefore, in contexts of drought, some countries, particularly in the Andean region, such as Ecuador, can be more affected than others," he told EFE. He also cited risks to farm output and food security in Central America's dry corridor.

AI adoption

The report devoted a chapter to artificial intelligence. It found that firms across the region are adopting the technology widely but rarely apply it to their core operations. A median of 17% of working-age adults report using generative AI tools, around half the rate in the United States and Canada.

The main obstacles are not cost or access but management know-how, worker skills and companies' ability to reorganise around new tools, the bank said.

"AI is already here. The question is whether the region can use it productively. A powerful tool is less relevant if workers and firms lack the capacity to act on what it produces. Governments that invest now in skills and firm capabilities will likely see real gains," Rodriguez-Castelan said.

He added that between 40% and 60% of Latin American companies already use AI, but with wide gaps between large and small firms. Large Mexican companies are closer to their US peers than to those in other developing regions, he said, while small Mexican firms trail even those in other emerging economies.

The report estimated that about 8% of the region's workforce holds high-skill, knowledge-intensive jobs that AI could enhance. Around 10% work in routine cognitive roles that are more exposed to automation. Roughly a quarter of workers are in routine manual jobs that could be affected as automation hardware becomes cheaper.

The World Bank urged governments to strengthen firms' capabilities, expand short-cycle and technical training and modernise digital public services and data systems. It also highlighted the promise of low-cost "small AI" applications tailored to local needs in areas such as education, telemedicine and public services.