Geographies in Depth

Is Latin America's economic tide turning? Here are some insights from Davos 2025

Arancha Gonzalez Laya; Linda Kirkpatrick, President, Americas, Mastercard, USA; Mohamed Irfaan Ali, President of the Co-operative Republic of Guyana; speaking in Is Latin America's Economic Tide Turning? session at the World Economic Forum Annual Meeting 2025 in Davos-Klosters, Switzerland, 22/1/2025, 15:00 – 15:45 at Congress Centre - Aspen 1. Stakeholder Dialogue. Copyright: World Economic Forum / Jakob Polacsxek

Economies in Latin America are recovering from the shocks of previous years, after the war in Ukraine pushed up prices and raised the cost of living everywhere. Image: World Economic Forum

Pablo Uchoa
Writer, Forum Stories
This article is part of: World Economic Forum Annual Meeting
  • Economies in Latin America are recovering from the shocks of previous years, after the war in Ukraine pushed up prices and raised the cost of living everywhere.
  • But medium-term growth is projected to be lacklustre and the region faces challenges such as the impact of trade tensions, low productivity, and the effects of climate change.
  • There are, however, opportunities and representatives of Latin American governments in Davos were asked: is the region's tide turning?

Compared to three years ago, when the war in Ukraine disrupted global supply chains and pushed up inflation everywhere, the economies of Latin America are faring much better: prices have subsided and growth prospects are lacklustre but positive, according to the latest projections by the International Monetary Fund (IMF). But in this improved scenario, there is little place for complacency: the region continues to face significant medium- and long-term challenges, such as low labour productivity, ensuring food security and improving resilience to extreme weather events.

And while the new geopolitical outlook offers some opportunities – like the trend towards nearshoring after the pandemic – it also brings uncertainties, especially the threat of new tariffs and protectionism that can hurt global trade. Governments have limited fiscal space to face all these challenges.

Participants at the Forum's Annual Meeting in Davos 2025 – among whom were Latin American heads of state, government officials and experts from academia, multilateral organizations and civil society – debated the region's fortunes and imparted a variety of perspectives that paint a complex scenario for Latin America. Here are some of the insights they brought to Davos 2025.

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Trade fragmentation

Having greatly benefited from global trade, particularly during the commodity boom earlier in this century, Latin American economies must now navigate possible new disruptions. Trump's new trade policies could lead to US tariffs on imports from Mexico and Canada. Even more importantly, the region could get stuck between a US-China trade war. Global tensions can potentially impact Latin American economies insofar as they affect main export markets, said Alberto van Klaveren, Chile's minister of Foreign Affairs, speaking during a session in Davos 2025.

Chile is one of the Latin American economies that developed an "extremely active trade policy" in a favourable scenario, striking trade agreements with over 60 economies, but is now at risk of being "dragged down by these tensions that are occurring globally". He described fragmentation and the prospect of sanctions as "clouds in terms of global trade". Yet Chile is not pessimistic, he added, because Latin America counts on the agroindustries, the minerals, and the clean energy potential to feed a growing population and enable to energy transition.

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An illustration of how nationalism is potentially shaping trade, Trump's mention of securing the control of the Panama Canal made headlines around the world earlier this year. In Davos, Panama's president Jose Raul Mulino Quintero again rejected Trump's remarks, saying, "the Panama Canal belongs to Panama" and adding that it was "not a concession or a gift from the United States."

But he preferred to emphasise the ways in which this episode could lead the two countries to work more closely. Mulino highlighted that “we have been an ally and friend of the United States”, the canal’s largest user. He pointed out that the dollar is widely used in Panama and a large number of transnational and American companies, banks, and organizations have bases in Panama. “Panama is not distracted by these kinds of pronouncements,” said the president.

Nearshoring

There are other potentially beneficial trends for Latin American economies – and the upsides of nearshoring have recently been trumpeted. The Dominican Republic is one nation with ambition to emerge as a key hub in the region, said Víctor Orlando Bisono Haza, the Dominican minister of Industry, Commerce, and Micro, Small, and Medium Enterprises.

"Our main challenge is to be able to consolidate social, economic and political stability to take advantage of nearshoring, to take advantage of new value chains," said Bisono in a Forum interview. He underscored the country's resilience in overcoming global supply chain disruptions caused by COVID-19, the Ukraine-Russia conflict, and the disruption of the Suez Canal. The Dominican Republic has been posting robust economic growth, averaging five percent annually, and Bisono attributed this success to strong public-private alliances that foster broad participation, generates growth, and lifts marginalized populations out of poverty.

'Turning point'

Ilan Goldfajn, president of the Inter-American Development Bank (IDB), told the audience during a session in Davos that "investing in Latin America makes economic sense" and cited opportunities in services and critical minerals, benefitting from the region's reliable supply chains in areas including healthcare, semiconductors, and infrastructure. But the participants in Davos highlighted not only the potential of Latin American economies but also the strength of its private sector. Latin American companies are showing that they too can be agents of change and integrate technology, innovation and socioeconomic impact to create a more sustainable future.

Goldfajn said the region is at a "turning point". While old challenges remain, new ones appear and others get intensified, for example, by climate change. Latin America may be more easily associated with lush forests and flowing rivers, but the World Bank says that, over the last two decades, Latin America has experienced 74 droughts. Peru is still rebuilding after cyclone Yaku unleashed torrents of rain on the country's northern region in 2023, causing landslides and acting as a grim reminder of the likelihood of extreme weather events in the future.

Dina Ercilia Boluarte, President of Peru, said her administration is unblocking infrastructure and agricultural projects, "with the view that from now on the concern is going to be food security. And why is there going to be a shortage of food in the world? Because we have water shortages due to climate change. That is why we are opening our agricultural frontier, unblocking irrigation works which will generate a number of hectares, as well as agricultural work."

Another long-term risk Latin American economies are often associated with – and which was part of the conversation in Davos – is crime and organised crime. And it is no surprise given the burden it places on the region's economies: more than 3.4% of the GDP or nearly 80% of what it spends in education, according to the Inter-American Development Bank (IDB). This transnational issue cannot be tackled in one country alone, hence it has generated multilateral responses like the Alliance for Security, Justice, and Development, which gathers 19 governments (and counting) and operates on three pillars: protecting vulnerable communities, strengthening security and justice institutions – by helping them digitalize and organize, for example –, and following illicit financial flows and curbing illicit markets.

Faced with common challenges and opportunities, Latin American nations have adopted case specific formulas, like Javier Milei's rapid control of inflation and public finances in Argentina by reducing the state and rolling back regulations. The current levels of public debt have concerned analysts this year in Davos. At the same time, more investment will be needed to increase labour productivity and ensure the most vulnerable are not left behind, which highlights the importance of public-private collaborations.

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'Rebuilding Trust' at Davos 2025

The common issues highlight differences in the region's economies but can also bring them together. Ultimately, as Goldfajn stresses, "a stable and prosperous Latin America contributes to a strong, prosperous and democratic Western Hemisphere."

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The views expressed in this article are those of the author alone and not the World Economic Forum.

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