Latin America and the Caribbean will grow more slowly than previously expected this year and next, the International Monetary Fund said on October 13. The Fund warned that the energy price shock from the Middle East war is hitting a region that, unlike much of the world, has largely missed out on the artificial intelligence investment surge.
The Fund’s World Economic Outlook was released in Bangkok, where the IMF and World Bank are holding their annual meetings. It put regional growth at 2.3% in 2026, a tenth of a percentage point below the July estimate and slower than the 2.5% recorded in 2025. Expansion in 2027 is now seen at 2.5%, compared with 2.7% projected three months ago.
The cuts for Latin America run against the global trend. The IMF lifted its 2026 world growth estimate by a tenth of a point to 3.1%. It said spending linked to AI and the rerouting of energy flows had kept the world economy resilient, albeit unevenly.
The Fund said higher commodity prices benefit the region’s exporters while hurting its energy importers. It added that the net effect in each country also depends on how credible its inflation-targeting regime is, and that “there is little offset from the technology upturn in most countries.”
Oil prices have surged since the Iran war began, with Brent about 45% above prewar levels, Reuters reported, driving up energy bills for households and firms. Expectations that inflation will stay elevated have in turn sent global borrowing costs to their highest in decades.
Argentina hit hardest
Argentina’s outlook deteriorated most sharply among the region’s major economies. The IMF slashed its 2026 growth forecast for the country by 1.4 percentage points to 2.1%, less than half the 4.5% expansion posted in 2025. It lowered its 2027 estimate by half a point to 3.5%. The Fund sees inflation, which stood at 41.9% last year, slowing to 32.5% in 2026.
In July, the IMF had described Argentina’s outlook as “positive.” Petya Koeva Brooks, deputy director of the Fund’s Research Department, told reporters at the time that disinflation should continue gradually, and forecast inflation of 25% by year-end.
In Brazil, Latin America’s biggest economy, growth is now expected at 2.2% this year, down from 2.4% projected in July. It is then forecast to ease to 1.9% in 2027, three tenths of a point below the previous estimate. The IMF attributed the slowdown to tight monetary policy aimed at returning inflation to target, the unwinding of fiscal support and global uncertainty. That marks a change in tone from July, when the Fund had described Brazil’s growth prospects for this year as resilient.
Mexico bucked the trend. The IMF raised its 2026 growth forecast for the country by three tenths of a point to 1.5%, following a 0.5% expansion in 2025. The Fund said exports, “including through AI value chains”, and steadier investment are now behind the projected recovery, whereas in July it had pointed to looser domestic policies. Growth is expected to reach 1.8% next year, a tenth below the July estimate. The IMF cautioned that “trade and other uncertainties will continue to constrain activity.”
Statistical tables accompanying the report point to severe weakness elsewhere. Chilean growth is projected to slump to 0.6% in 2026, less than a quarter of last year’s 2.5% pace. Bolivia’s economy is set for a second straight year of contraction, shrinking 3.0% after a 1.6% decline in 2025. Venezuela’s inflation rate is forecast to nearly double to 467.9% from 252.0%.
Downside risks
The IMF said the main threats to the outlook are negative. A bout of financial market stress could raise the cost of government debt in emerging economies, weaken their currencies and tighten credit at home, it added.
The Fund also flagged the El Niño weather pattern, which the World Meteorological Organization expects to peak as a very strong event towards the end of this year, warning that floods and droughts could unsettle commodity markets and push food prices higher at a time when fertiliser costs are already elevated. Trade frictions “could reignite”, the IMF said, either because of ongoing conflicts or a more disruptive reshuffling of supply chains as governments turn to protectionism to shield local industry.
Speaking in Singapore last week, IMF Managing Director Kristalina Georgieva said AI-driven demand and the Middle East energy crisis were “pulling” the global economy in opposite directions, EFE reported.
Shifting forecasts
The latest revisions bring the IMF’s regional outlook back to where it stood in April, when the Fund projected 2.3% growth for Latin America and the Caribbean in 2026. It had raised that estimate to 2.4% in its July 8 update.
The Fund’s view of the region’s largest economies has swung considerably over the year. Brazil’s 2026 forecast was 1.9% in April, rose by half a percentage point to 2.4% in July, and has now been cut to 2.2%. Mexico’s projection moved the opposite way. It fell to 1.2% in July from 1.6% in April before the partial recovery to 1.5%. Argentina’s 2026 forecast, which the IMF had held at 3.5% in both April and July, has now been cut by 1.4 percentage points.
At the global level, the Fund trimmed its 2026 forecast to 3.0% in July from 3.1% in April. At the time, it said gains from AI investment had failed to fully compensate for the economic fallout of the conflict between the United States, Israel and Iran. The latest upgrade returns the global projection to its April level.