Boosting Resilience for Latin America and the Caribbean amid Global Uncertainty

Amid a backdrop of global uncertainty, Latin America and the Caribbean has remained resilient. Unemployment is at or near historically low levels, and so are sovereign risk premia, reflecting strong investor confidence. Exchange rates have appreciated against the US dollar in many countries, and inflation has largely been contained. Growth, while modest and heterogeneous across countries, is expected to remain near its long-term average, with projections for the region as a whole for 2025 and 2026 at 2.2% and 2.1%, respectively. Years of institutional strengthening are paying off. In contrast to other periods of historical uncertainty, improved fiscal and monetary policies are reaping rewards.

At the same time, the uncertainty in the international arena is creating risks, as we detail in our recently released 2026 Latin American and Caribbean Macroeconomic Report. Geopolitical tensions, globally high long-term interest rates, and the increase in public debt, particularly in advanced economies, are generating persistent external pressures, limiting borrowing options for countries in Latin America and the Caribbean and constraining their fiscal and external positions. Shifting trade patterns contribute to this atmosphere of uncertainty, as does shifting risk sentiment. 

The region will need to now rebuild its fiscal space, anchor inflation expectations, and effectively deal with the return of current account deficits as tighter global financing conditions and higher interest payments produce their impacts.   Moreover, countries will need to do so amid changes in global conditions, with volatile commodity prices that particularly affect commodity-dependent economies and those with weak policy frameworks. 

New opportunities beckon. With the use of credible macroeconomic guidelines and the creation of strong buffers, Latin America and the Caribbean could turn new technological and commodity-driven developments, including growing digitalization and the rapid emergence of artificial intelligence (AI), into long-awaited growth fueled by greater productivity.

Diverging Commodity Trends 

Uncertainty and geopolitical tension strongly affected advanced economies in 2025, and investors worldwide sought safety. They particularly turned to gold as a hedge and substantially increased its price, which doubled in real terms between October 2023 and November 2025. In contrast, moderate global growth prospects and a rise in oil supply affected energy prices, a phenomenon that tends to amplify the effects of external shocks for countries in Latin America and the Caribbean. Although prices have not dropped as much as in past episodes, this trend could pose a threat to fiscal revenues, external balances, and growth prospects. Recent geopolitical developments have pushed oil prices up again, suggesting that this trend could reverse. However, much will depend on whether current supply constraints persist, pointing to the possibility of greater volatility in oil prices ahead.

There have been positive developments when it comes to other commodities. The rise of AI and digitalization has boosted demand for industrial metals, and this could support the upward trend in minerals such as copper, generating a new window of opportunity for the region.

These new technologies and a structural change in energy systems are expected to continue boosting global demand for critical minerals, with different projections depending on whether climate policy commitments shift towards more ambitious goals or remain as they are. Estimates for the increases in demand for lithium between 2024 and 2050, for instance, range from 470% to 800%. Richly endowed with such critical minerals, the region has the potential to develop a sustainable production of them. That, in turn, will depend on building an adequate institutional, infrastructural, and technological framework to support extraction and production-related activities.

Latin America and the Caribbean also have substantial rare-earth reserves, mainly concentrated in Brazil. Considering current price levels and the country’s reserves, Brazil’s assets could amount to almost twice its GDP. Today, the region produces around 0.005% of the global supply of rare earths, which is currently dominated by China. Regional integration will be key to achieving the necessary scale and to coordinating strategies to cover both upstream and downstream segments of the value chain, as well as improving knowledge diffusion around their extraction. On the fiscal side, policies that are efficient, countercyclical, transparent, and oriented towards productivity-enhancing investment will be crucial to maneuvering through the ever-so-common commodities’ boom-and-bust cycles.

Consolidation Has Stalled, Debt Service is Rising 

Fiscal progress has stalled, with Latin America and the Caribbean’s average gross debt as a percentage of GDP at 59% in 2025, according to projected estimates. That is above pre-pandemic levels and estimated risk thresholds. The region is also still dealing with high public debt levels. Rising interest payments are the primary source of fiscal pressure, surpassing 3% of GDP in 2025, their highest level in two decades. This mostly reflects the legacy of past borrowing, although higher effective interest rates are increasingly shaping interest payment dynamics.

In recent years, fiscal outcomes have been shaped by revenue performance, with modest growth primarily driven by inflation rather than real activity. Given revenue’s central role in consolidation and debt stabilization, the ongoing digitalization of countries’ tax administration could improve their collection capacity. Rigidities constraining current spending also need to be addressed.

The design of fiscal rules and their implementation are key to managing the region’s fiscal risks. Developing a clear legal framework is as important as consistently and predictably implementing it, principally because of compliance rates’ influence on market expectations. Countries that can meet their fiscal rule targets tend to exhibit lower sovereign spreads and stronger credit ratings. Conversely, breaching rules tends to translate into higher financing costs. Credibility, in short, is fundamental to anchoring expectations and ensuring better financial conditions, both of which are crucial in situations where global markets are tight.

Labor Markets: Short-Term Gains, Long-Term Challenges 

The region has been able to successfully absorb workers into its labor force. Although job creation has been uneven across countries, most countries saw their unemployment rates fall between June 2024 and June 2025. This drop in unemployment reflects post-pandemic growth as well as the labor market’s resilience.  It is worth noting, however, that the job market expansion has been sustained by labor factor accumulation, with capital expansion and total factor productivity making only limited contributions. 

Strong labor inputs, of course, have traditionally supported growth. But with the region’s working-age population expanding at a slower pace than before, strategies will need to shift their focus towards productivity. Firms are currently seeking workers with digital and analytical capacities, including those related to AI: digital skills appear in 15% to 25% of job vacancies across countries, with references to AI reaching 7% as of June 2025. Amid dramatic technological changes, policies must be focused on expanding access to digital training and increasing workers’ skills in ways that will ensure their smooth transition towards new occupations and higher levels of overall productivity.

With market dynamics heightening the region’s vulnerability, efforts to rebuild policy buffers and improve fiscal and macroprudential frameworks are essential to preserving resilience. So is taking advantage of the trade, technological, and commodity-driven opportunities that can generate productivity gains and boost growth.