IMF Forecast: Economic Growth in Latin America and the Caribbean to Moderate

Economic Counsellor and Director of the IMF’s Research Department, Pierre-Olivier Gourinchas, addressing the news conference on Tuesday

WASHINGTON, CMC—The International Monetary Fund (IMF) said on Tuesday that economic growth in Latin America and the Caribbean (LAC) is projected to moderate from 2.4 percent in 2024 to two percent this year before rebounding to 2.4 percent in 2026.

The IMF has released its World Economic Outlook (WEO) forecast, revising downward by 0.5 percentage points for 2025 and 0.3 percentage points in 2026 compared with the January 2025 WEO.

IMF’s Spring Meetings and Trade Tariffs

The figures were released here during the IMF’s Spring Meetings, which took place on Friday against the backdrop of the trade tariff announced by United States President Donald Trump in February and expanded in April.

The revisions in Latin America and the Caribbean largely reflect a significant downgrade to growth in Mexico, by 1.7 percentage points for 2025 and 0.6 percentage points for 2026.

This is lower than the projections in the January 2025 WEO Update by 0.5 percentage points for 2025 and 0.3 percentage points for 2026, with downward revisions for nearly all countries.

The downgrades are broad-based across countries and largely reflect the direct effects of the new trade measures and their indirect effects through trade linkage spillovers, heightened uncertainty, and deteriorating sentiment.

Reasons for Downgrade

This reflects weaker-than-expected activity in late 2024 and early 2025, the impact of tariffs imposed by the United States, the associated uncertainty and geopolitical tensions, and a tightening of financing conditions.

Economic Counsellor and Director of the IMF’s Research Department, Pierre-Olivier Gourinchas, told a news conference coinciding with the release of the WEO that the IMF’s recommendations call for prudence and improved collaboration.

“First, the obvious priority is to restore trade policy stability. The global economy needs a clean, stable, and predictable trading environment that addresses long-standing gaps in international trading rules.”

IMF’s Recommendations

He said monetary policy must remain agile and respond by tightening where inflation pressures re-emerge while easing, where weak demand dominates.

“Monetary policy credibility will be key, especially where inflation expectations might de-anchor, and central bank independence remains a cornerstone,” Gourinchas said, noting that many fiscal authorities will face new spending needs to bolster defense spending or to offset the trade dislocations likely to come.

“Some of the poorest countries also hit with reduced official aid could experience debt distress. Yet debt levels are still elevated, and most countries need to rebuild fiscal space by implementing structural reforms.

“Support, where needed, should remain narrowly targeted and temporary. It is easier to turn on the fiscal cap than to turn it off. Where new spending needs are permanent, such as defense spending in some countries, planning for offsetting cuts elsewhere or new revenues should be made.”

Global Economic Outlook

Gourinchas said that while some of the grievances against the trading system have merit, “we should all work towards fixing the system so that it delivers better opportunities for all.”

He said the landscape has changed since the last WEO update in January: “We’re entering a new era as the global economic system that has operated for the last 80 years is being reset.”

He noted that since late January, many tariff announcements have been made, culminating on April 2, with near-universal levies from the United States and counter-responses from trading partners.

“The US effective tariff rate has surged past levels over 100 years ago. Tariff rates on the US have also increased,” Gourinchas said, adding that the surge in policy and uncertainty is a major driver of the economy beyond the abrupt increase in tariffs.

Risks to Global Economy

“Risks to the global economy have increased and are firm to the downside,” Gourinchas said, adding that while the IMF was not projecting a global downturn, the risks that may happen this year have increased substantially from 17 percent back in October to 30 percent now.

“An escalation of trade tensions would further depress growth. Financial conditions could also tighten as markets react negatively to diminished growth prospects and increased uncertainty. Conversely, growth prospects could immediately improve if countries ease their current trade policy stance and promote a new, clear, and stable trade environment,” Gourinchas said.

Conclusion

The IMF’s forecast highlights the need for countries to work together to restore trade policy stability and promote a clean, stable, and predictable trading environment. The global economy is at a critical juncture, and addressing domestic imbalances can help raise growth while contributing significantly to closing external imbalances.

Frequently Asked Questions (FAQs)

Q: What is the IMF’s forecast for economic growth in Latin America and the Caribbean?

A: The IMF forecasts that economic growth in Latin America and the Caribbean will moderate from 2.4 percent in 2024 to two percent this year before rebounding to 2.4 percent in 2026.

Q: What are the main reasons for the downgrade in the IMF’s forecast?

A: The main reasons for the downgrade are the direct effects of the new trade measures, indirect effects through trade linkage spillovers, heightened uncertainty, and deteriorating sentiment.

Q: What are the IMF’s recommendations for monetary policy?

A: The IMF recommends that monetary policy must remain agile and respond by tightening where inflation pressures re-emerge while easing, where weak demand dominates.