IMF walks back its growth forecast for Latin America, but there are bright spots
The International Monetary Fund cut its growth outlook for Latin America this week, saying it now thinks the regional economy will expand just 2% this year as tariff-fueled uncertainty becomes the global buzzword of the moment. The downward revision from 2.5% was largely attributed to a gloomy take on Mexico—which the bank now expects to enter into recession this year—but there are bright spots in the forecast.
Argentina is surging ahead of peers and should see its economy grow 5.5% this year after contracting in 2024 as President Javier Milei pushed through what he himself has said was the biggest austerity package in the history of humanity. Inflation in the land of tango and Malbec is also on the way down, and consumer prices there will rise 35.9% in 2025. That may sound high, but it’s a drastic improvement from the 220% jump seen last year, and the rate is expected to keep decelerating into 2026 when it will clock in at 14.5%.
The country earlier this month relaxed exchange controls in a risky move for Milei ahead of congressional elections scheduled for October, and it also got a fresh $20 billion loan from the IMF in a vote of confidence that shows the bank believes things are heading in the right direction. Markets have also been in agreement, and the Global X MSCI Argentina ETF (NYSE: ARGT) has risen 60% over the past year compared to the gain of 7.4% seen in the S&P 500 over the same time period.
“The positive surprises that we had seen, in spite of a very strong fiscal adjustment, the recovery in confidence I think has definitely played a role in kind of driving us to have this forecast,” IMF researcher Petya Koeva Brooks said during a press conference. “That said, there are a number of risks related to tighter financial conditions, commodity prices, and a lot of others, which is true for many if not most other countries.”
The only other countries in the region with the enviable combination of accelerating GDP growth and slowing inflation are Colombia and Ecuador, where tough-on-crime President Daniel Noboa just won re-election. Over in Bogotá, the numbers line up with the emerging thesis that things can only get better as the country prepares for presidential elections next year and President Gustavo Petro tries to salvage his reputation. Paraguay and Peru are also expected to grow faster than the regional average, and inflation in those countries is coming down, too.
The challenges ahead
“For Latin America, as a whole, we are seeing activity that is largely driven by consumption on the back of resilient labor markets while investment remains somewhat sluggish,” IMF researcher Pierre‑Olivier Gourinchas said. “And the slowdown in our projection reflects the impact of tariffs and the global growth slowdown.”
Brazil, Chile, Bolivia and Uruguay will all be tested with decelerating growth and rising inflation this year, according to the IMF. Venezuela—facing renewed sanctions from the US—is set to return to a toxic mess with GDP expected to contract by 4% as inflation re-enters triple-digit territory, and it’s only going to get worse next year.
Much will depend, of course, on how ongoing trade talks play out, and the IMF acknowledged that the various scenarios that could emerge in the days and weeks ahead have added a level of complexity to its outlook that wouldn’t usually exist. Mexico, for its part, is not buying the bank’s dreary forecast and thinks it can work to counteract many of the external forces pressing down on it.
“We were informed yesterday that this forecast from the International Monetary Fund was coming,” Mexican President Claudia Sheinbaum said in a press conference earlier this week, referring to the projection that its economy will lose 0.3% of output this year. “We don’t know what they’re basing it on. We don’t agree. It’s not just that I don’t agree, but our own economic models from the Finance Ministry don’t match that outlook.”
“They’ve gotten used to telling each country what it’s supposed to do,” she continued. “They don’t believe that governments can do anything to change a situation that comes from the market itself. We disagree with that view.”
Sheinbaum said that the country was working to boost its domestic economy with a recently announced development program known as Plan México that will focus on areas including the aerospace industry and domestic manufacturing. If she can pull it off—or even just negotiate a better trade deal with the US—the IMF, and the broader market, may indeed be in for a surprise. There’s nothing quite like exceeding expectations.
