Latin American Economic Outlook 2026

Executive summary

Global transformations open new opportunities for development in the region

Latin America and the Caribbean (LAC) is well placed to benefit from the deep transformations reshaping the global economy. First, the green transition increases global demand for renewable energy, low-emissions fuels and critical minerals, areas in which LAC holds significant advantages. Renewable sources generated 64.3% of the region’s electricity in 2024, more than double the global average (31.9%). This can attract industries seeking abundant and low-carbon energy, strengthen energy security and boost exports of low-emissions fuels (e.g. green hydrogen). LAC can also be a strategic supplier of critical minerals, given its large reserves (e.g. 48% of lithium and 36.6% of copper reserves globally). Local processing and refining (representing 20% of minerals extracted), supplier linkages and job creation are key.

Second, Artificial Intelligence (AI) offers important opportunities. LAC’s geography, climate and renewable energy endowments make it attractive for data centres, which could grow globally by 19-22% annually until 2030. LAC accounts for 0.4% of global hyperscale data-centre capacity (the United States and China account for about one-third). Sustainability is essential, given the high resource intensity of AI infrastructure, while maximising benefits requires strong links with local firms, capabilities and digital ecosystems. AI can also raise productivity, by moving from consumption to adoption and innovation. Rather than competing at the AI frontier, LAC can build capabilities around its sectoral strengths and needs, including in agrifood, mining, renewables, logistics, and digital and financial services. Investments are key in a region accounting for 6.6% of global GDP but only 1.12% of AI investment. Unlocking AI’s potential will require digital infrastructure, advanced skills, financing, alignment of digital and productive development policies, and regional co-operation on data, computing, regulation and research.

Finally, rising global food demand, demographic changes and the reconfiguration of the global order are also relevant global trends where LAC can play a strategic role. Building on its 18% share of global agrifood exports, the region can help meet growing food demand by improving productivity, value addition and climate resilience. Rising life expectancy and declining fertility rates accelerate population ageing in LAC, and the working-age population is expected to decline after 2030, but there will be strong potential for job creation around the silver and care economies. Finally, LAC’s commitment to multilateralism and global agendas, as well as its relatively peaceful interstate relations, make it a reliable international partner.

These global transformations offer LAC a pathway to overcome longstanding structural weaknesses, like low productivity, infrastructure and skills gaps, and limited fiscal space. Turning these barriers into opportunities will require navigating a complex international context, characterised by weak global growth, geopolitical tensions, tight financial conditions and climate vulnerabilities, including the risk of an El Niño episode in LAC, with potential impacts on agriculture, infrastructure, electricity generation and inflation.

Deeper regional and global integration will help to seize emerging opportunities

A more integrated LAC can better navigate global transformations, as stronger regional markets and value chains can help firms gain scale, capabilities and resilience. In turn, deeper engagement with global markets can drive regional integration by increasing demand for scale, efficiency and resilient supply chains, fostering lower barriers, harmonised standards, and stronger cross-border infrastructure.

Regional trade integration remains modest. Intraregional exports represented only 14% of LAC’s total exports in 2024, lower than in 2000 (18%) and well below Africa (17%), Asia (59%) and the European Union (67%). However, there is important potential for expanding intraregional trade, which on average remains six percentage points of GDP below its estimated structural potential. Intraregional exports of high-technology and medium-low technology manufactures were 75% and 45% below the estimated potential.

Regional integration can also be deepened by strengthening regional value chains (RVCs), which link firms across countries through intermediate inputs, boosting specialisation. RVCs in LAC account for only 13% of global value-chain participation (49% in the EU; 52% in East and Southeast Asia). However, almost 10% of intermediate inputs sourced outside could be sourced regionally, including chemicals, iron and steel, agrifood, vehicles, machinery and electrical equipment. Sourcing up to 10% of extraregional inputs could increase domestic value added of exports by 0.47 percentage points of GDP.

Regional trade integration remains hindered by several factors, including tariff and non-tariff barriers. Non-tariff measures impose costs equivalent to a 13% average tariff. Also, overlapping production structures reduce opportunities for value-chain development, although important complementarities exist in medium-and-high-technology manufactures and between some countries. LAC can build on its integration frameworks by improving implementation, harmonising rules of origin and facilitating input cumulation.

LAC has become more integrated globally, with total trade rising from 39% to 50% of GDP in 2000-24. However, this has not led to sufficient diversification or upgrading. Commodities, resource-based products and low-technology manufactures account for 62% of goods exports, while high-technology manufactures represent only 17% (33% in ASEAN economies and 28% in the EU). Expanding trade with underexplored markets, such as ASEAN and Africa, which absorbed only 2.9% and 1.7% of LAC’s goods exports in 2024, could open new opportunities for higher value-added exports. Foreign direct investment (FDI) can also support the development of regional and global value chains. For instance, a 10% increase in FDI is linked with a 0.16 percentage-point rise in domestic value added reaching global markets.

Regional integration in electricity, digital and financial markets can boost LAC’s potential by improving the use of renewable energy, giving firms the scale to compete digitally and deepening access to capital. Progress will require stronger institutions, regulatory convergence and interoperable systems.

Stronger enabling conditions and partnerships are fundamental

Infrastructure, skills and financing are key enabling conditions for LAC to successfully integrate into a changing economy. Closing half the infrastructure gap with advanced economies could increase exports by 30%. Strategic financing, including through national and multilateral development finance institutions, can support regional priorities like cross-border infrastructure, value chains and SME trade finance. Stronger skills are needed to adapt to technological change. While traditional automation risks could affect 27% of LAC’s labour force, AI could have a stronger impact on formal workers performing cognitive tasks.

Strategic partnerships can support LAC’s development. The mutually beneficial EU-LAC partnership holds large potential: the EU’s Global Gateway Investment Agenda can promote investment, trade and co-operation in strategic sectors such as renewable energy, critical raw materials, transport, health, and digital connectivity. Its growing focus on cross-border infrastructure, shared standards and regional value chains can support production transformation and regional integration. Recent initiatives explicitly target regional public goods, including the EllaLink submarine cable extension, Central American power market integration, green maritime corridors, and regional vaccine production. Likewise, the EU-Mercosur Partnership Agreement brings strong potential, which could have regional spillovers if the interoperability of rules of origin across existing EU–LAC agreements is improved.