24 fev Latin American Economic Outlook 2025

Latin America is poised for a mixed economic performance in 2025, characterized by a variety of challenges and opportunities, with each country navigating unique political, fiscal, and external pressures. Mexico’s nearshoring initiatives and fiscal adjustments, Argentina’s aggressive austerity measures, Venezuela’s continuing economic and political struggles, and Brazil’s green energy push all highlight the need for adaptation to global economic shifts, while emphasizing the region’s growing importance in global supply chains, energy transitions, and digital infrastructure. However, inflationary pressures, political instability, and public debt concerns remain prevalent, particularly in countries such as Colombia and Venezuela, where economic uncertainty is compounded by governance issues. International relationships with foreign powers, particularly with the United States, will also directly impact the growth prospects of several countries including the U.S. territory of Puerto Rico.

As Latin America continues to grapple with these multifaceted challenges, the region’s projected GDP growth for 2025 is expected to hover around 2.3%, reflecting both a stabilization in key economies and the struggles of others. While opportunities exist in sectors such as renewable energy, infrastructure development, and foreign direct investment, the region must contend with persistent inflation, fiscal constraints, and geopolitical risks. Ultimately, the path forward for Latin America in 2025 will hinge on how effectively each country can manage its internal challenges and capitalize on the evolving global economic landscape. The following sections will delve into the factors shaping the economic trajectories of key economies across the region:

Argentina

Despite being Latin America’s third largest economy, Argentina has historically presented economic instabilities that deter investor sentiments. However, after years of strife without lasting improvements, an economic rebound may be on the horizon under President Milei’s administration as GDP is expected to grow 5% after a two-year period of contraction. Milei has taken a “chainsaw” or “shock therapy” approach to tackling the country’s longstanding hyperinflation by cutting public spending. His approach has led to the firing of thousands of government employees, the halting of nearly all public infrastructure projects, the slashing of energy and transportation subsidies, and the freezing of public sector wages and pensions. His methods remain highly controversial. While they successfully reduced public spending by 30% from 2023 to 2024 and lowered inflation from 290% to 118%, they also drove the poverty rate up from 42% to 52% – the country’s highest level in almost two decades.

A crucial component of Milei’s economic strategy has been stabilizing the Argentine peso, depreciation by 260% in 2023 as inflation soared. In response, Milei implemented a 50% devaluation of the peso upon taking office in December 2023, along with a controlled depreciation policy (crawling peg) to curb volatility. These efforts, combined with strict fiscal tightening and the elimination of monetary financing, led to a 44.2% appreciation of the peso against the U.S. dollar throughout 2024. By early 2025, the government further reduced the controlled depreciation rate to 1% per month, signaling confidence in the currency’s stability. Milei’s administration plans to lift currency controls by the end of 2025, aiming for a more flexible exchange rate—though this move carries risks of renewed volatility. While these policies restored financial stability, concerns remain that the peso’s real-term appreciation could weaken Argentina’s export competitiveness.

As part of his austerity measures, Milei has promised to privatize state-owned firms. In January 2025, his administration completed its first privatization: selling the state-owned metallurgical company Industria Metalúrgicas Pescarmona (IMPSA) to the U.S.-based consortium Industrial Acquisition Fund (IAF). IAF has proposed a US$27 million capital injection into IMPSA and is seeking to refinance the company’s US$576 million debt by January 31. This privatization is seen as a test case for Milei’s broader privatization agenda, which targets state-owned enterprises in energy, transportation, and infrastructure. While supporters argue that privatization will make industries more competitive and financially sustainable, critics warn that it could lead to mass layoffs, reduced public oversight, and foreign control over key national assets.

To continue attracting business investment, Milei’s administration introduced the “Ley de Bases y Puntos de Partida para la Libertad de los Argentinos” (“Ley de Bases”) bill in June 2024, a cornerstone of his pro-market reform agenda. The bill aims to deregulate the economy, promote competition, and strengthen Argentina’s free-market system by reducing bureaucratic hurdles and incentivizing private sector growth. A key provision, the Incentive Regime for Large Investments (RIGI, in Spanish), is designed to attract large-scale, long-term investments by offering significant tax benefits, exemptions from exchange controls, and regulatory stability for up to 30 years. Under RIGI, qualifying projects—particularly in key sectors such as energy, mining, infrastructure, and technology—are granted reduced corporate tax rates, import duty exemptions, and unrestricted profit repatriation. Additionally, investors operating under RIGI are shielded from sudden regulatory or tax policy changes, providing a more predictable business environment. The measure is expected to increase foreign direct investment (FDI), boost economic growth, and modernize key industries, making Argentina more competitive in global markets.

As Argentines hold an estimated US$277 billion outside the formal banking system, Milei launched a tax amnesty program as part of “Ley de Bases” to encourage residents to deposit undeclared US dollars into local banks. The program’s first stage allowed individuals to repatriate up to $100,000 tax-free, while larger amounts were taxed at 5%. After November 8, the tax rate increased to 10% for deposits made by the end of January and will then increase to 15% by the end of April. By the end of October 2024, the program drew in around US$18 billion. Among Milei’s goals for this tax amnesty plan are to increase gross international reserves, dollarize the economy, and spur growth as the influx of cash would help local banks open credit lines for customers.

To further bolster central bank reserves and strengthen Argentina’s financial position, Milei’s administration is negotiating a new debt deal with the International Monetary Fund (IMF), following the country’s US$44 billion loan renegotiation in 2022. The IMF’s recent Ex-Post Evaluation (EPE) found the previous program failed to restore fiscal and external stability, citing gradual policy shifts, external shocks, and weak implementation. However, the IMF acknowledged Milei’s fiscal reforms as vital in averting a deeper crisis and advancing macroeconomic stabilization. IMF Managing Director Kristalina Georgieva praised Argentina’s progress, highlighting the elimination of the fiscal deficit and declining inflation as positive signs. Economy Minister Luis Caputo is leading discussions with IMF officials to secure additional funding to restore market confidence and advance Milei’s economic reforms.

Brazil

Brazil, the largest economy in Latin America, faces a complex economic outlook in 2025 under President Luiz Inácio Lula da Silva’s leadership. After two years of growth following the pandemic, Brazil is experiencing a moderate economic recovery with GDP growth expected at 2.3%. The country remains a global leader in renewable energy, with 80% of its electricity coming from renewable sources. Lula has placed significant emphasis on transitioning to a green economy, with the government projecting BRL 2 trillion in investments over the next decade through the National Energy Transition Policy (PNTE). This includes investments in wind, solar, green hydrogen, and biofuels, designed to reduce emissions and promote sustainable growth. In addition to environmental advancements, Brazil’s energy sector is seeing revitalization, with BRL 700 billion allocated through the Growth Acceleration Program (New PAC) for energy transition projects.

Despite these efforts, Brazil’s economic outlook faces key challenges. Inflation is projected to remain high at 4.8%, with the central bank’s policy of interest rate hikes expected to continue in the first quarter of 2025. The Brazilian central bank, which raised the benchmark interest rate to 13.25% in January 2025, is expected to continue tightening monetary policy in the first quarter of 2025. This is a response to persistent inflationary pressures, particularly in food prices, which are expected to remain high despite efforts to bolster agricultural production. The high interest rates are likely to constrain consumer spending and business investment, which could dampen economic growth. In addition, poverty rates, which increased from 42% to 52% during the pandemic, remain a concern, especially as inflation continues to erode purchasing power.

Lula’s policies have faced mixed reactions from markets. While his push for a green economy and energy transition has attracted international investment, concerns about government intervention and fiscal sustainability remain. The new energy policy, coupled with his administration’s focus on renewable industries, is expected to lead Brazil into a new era of industrial development, though challenges in public sector management and the delayed implementation of structural reforms remain.

A key area of focus in Brazil’s economic relations is trade with the United States. The U.S. imposed tariffs on steel and ethanol as part of broader trade measures under President Trump. In response, Lula has called for dialogue and proposed alternatives, such as steel quotas, to resolve these trade imbalances. The ethanol trade is particularly critical for Brazil, as it is the world’s second-largest producer of ethanol, and the U.S. tariffs hinder its export competitiveness. Lula’s administration has also expressed frustration with U.S. agricultural tariffs, particularly on sugar, and is pushing for more balanced and reciprocal trade agreements that would allow Brazil to boost exports of green energy products, including biofuels and ethanol. These pushes for reciprocal trade policies come as Brazil seeks to strengthen its international standing while protecting its national industries.

Brazil is expanding its renewable energy sectors like solar, wind, and biofuels, aiming to further establish itself as a global leader in green technology. With the ongoing push to modernize infrastructure and develop carbon capture technologies, Brazil is expected to be a key player in the global energy transition, particularly in the areas of green hydrogen and sustainable aviation fuel. However, U.S. tariff policies and the ongoing trade disputes present challenges in fully realizing these opportunities.

Colombia

Colombia’s business sector and broader economic performance face a clouded future under President Gustavo Petro’s administration. After a modest 2024 growth of 2%—as estimated by BBVA Research—Colombia’s GDP is expected to experience further growth in 2025, albeit with several hurdles. Inflation closed at 5.2% in 2024, down from 9.3% in 2023, showing some improvement in price stability, but still falling outside its central bank’s target range. The central bank’s cautious approach in lowering interest rates is expected to further control inflation, with projections to bring inflation within the target range by the end of 2025.

Colombia’s business climate under Petro remains uncertain. The private sector is increasingly concerned about the administration’s policies, which are perceived as unfavorable for businesses. The lack of clear economic strategies, combined with challenges such as high taxes, security issues, and controversial fiscal reforms has contributed to a gloomy outlook. A recent survey showed that over 60% of business owners are contemplating relocating abroad due to these economic difficulties.

Additionally, Petro’s environmental policies targeting the fossil fuel industry has put pressure on key companies in Colombia’s prominent sector, including Ecopetrol, the state-owned oil company. The government’s decision to halt investments in new oil exploration projects has raised concerns about future revenue streams as the Colombian economy remains dependent on oil exports, accounting for 10% of the GDP. However, in a significant move for Colombia’s oil sector, Ecopetrol renewed its joint venture with Occidental Petroleum in the U.S. Permian Basin in February 2025. This partnership is a crucial component of Ecopetrol’s strategy to maintain and grow its oil production abroad, with the company drilling approximately 91 development wells in 2025 and continuing to bolster its output. Despite Petro’s push for environmental reforms, this deal signals Colombia’s ongoing commitment to its oil sector as a critical revenue source, even as the country seeks to diversify its economy.

In line with this need for diversification, the government has been focusing on expanding its renewable energy sector to reduce the country’s dependency on oil. A key component of this strategy is Colombia’s $40 billion energy transition plan, which includes significant investments in renewable energy sources, such as wind, solar, and hydropower, as well as ecosystem restoration and sustainable agriculture. The plan allocates $14.5 billion to renewable energy expansion and $8.5 billion for nature-based solutions, including conservation, sustainable agriculture, and nature tourism. This green transition aims to reduce Colombia’s dependency on fossil fuels while preserving the country’s vast biodiversity.

For 2025, Colombia’s economy is projected to grow at a modest pace of 2.5%. This growth will likely be driven by private consumption and fixed investment, especially in infrastructure and housing. However, continued political instability, the effects of the recent minimum wage increase, and external economic pressures may limit growth potential. Furthermore, inflation is expected to remain a key challenge, with price pressures in essential goods and services like rent and food still a concern, despite improvements in the overall inflation rate. To navigate these challenges, Petro will need to ensure more collaboration with the private sector, stabilize the business environment, and continue to focus on reducing Colombia’s fiscal deficit, which is projected to remain high at 5.1% of GDP in 2025. His ability to stabilize Colombia’s macroeconomic fundamentals, particularly inflation and fiscal health, will be crucial in determining whether Colombia can emerge stronger from the current economic challenges.

Mexico

Representing the second largest economy in Latin America, Mexico lies at the forefront of investment opportunity amidst certain political, operational, and security risks. The country’s GDP growth rate decreased from 3.6% in 2023 to 1.4% last year. Although analysts forecast a continuation of the decline to 1% in 2025, this pattern is consistent with changes in political administration. The slowdown is generally attributed to a decrease in public spending as new leaders integrate into government operations and a decline in investment stemming from policy uncertainties. President Sheinbaum’s public budget presented in November of 2024 does project a reduction in spending of around 1.9%.

The administration also pushed to move the state-owned Petróles Mexicanos (Pemex) and Comisión de Federal Electricidad (CFE) from productive to public enterprises, shifting their objectives from generating economic profitability to social utility. This transition has sparked some concern as Pemex is one of the most indebted major oil producers in the world with financial debt close to US$100 billion. However, as Pemex and CFE require major support to achieve their production metrics, opportunities for private investment may arise.
Mexico’s external national debt has risen to US$123 billion. Over the last year, Mexico’s total public deficit has increased from an average of 2.7% between 2019-2024 to now 5.9% with Mexico’s total debt reaching US$889 billion by the end of November 2024, comprising 51% of the country’s GDP. Sheinbaum has inherited this increase in debt-to-GDP ratio, which while not jeopardizing the sustainability of the government’s debt-service payments, suggests impending deterioration and contributed to credit-rating agencies to downgrading their sovereign rating. At the end of 2024, Moody’s revised Mexico’s credit outlook from “stable” to “negative,” while maintaining its sovereign rating at “Baa2.”

President Sheinbaum also inherited judicial reform from her predecessor President López Obrador. The reform proposed the election of judges and ministers by popular vote over the next three years, replacing the current appointment-based method. The reform proposed the creation of a judicial discipline tribunal that will have the authority to review sentences and penalize judges with permanent disqualifications and/or criminal convictions. As the justice system has consistently posed operational risks in Mexico, contributing to the country’s ranking as among the weakest in rule of law, this reform does address the profound need for change. However, the reform has introduced a high-level of volatility into the investment climate as this transition will generate judicial unresponsiveness from judges set to be replaced this year, coupled with the uncertainty about the profile of the new system.

Increased uncertainty also lies within US-Mexico relations. As President Donald Trump took office in January, he began delivering on his campaign promise of deporting thousands of illegal immigrants, at least 4,000 of which were sent to Mexico just by January 27, according to President Sheinbaum. Thrusting thousands of unemployed individuals into Mexico may add more pressure on the government’s ability to achieve fiscal consolidation. The deportation rate may also decrease remittances to Mexico. Remittances made up roughly 4.5% of Mexico’s GDP last year, roughly US$64 billion, 96% of which came from the US. President Trump also threated to impose a 25% tariff on Mexican imports which would further dampen GDP growth as about 82% of Mexican exports go to the United States. However, on February 3, the parties came to an agreement that would pause the tariff imposition by 30 days.

In the face of these tensions, President Sheinbaum and her administration implemented a nearshoring decree as part of “Plan Mexico,” the administration’s economic development plan. The Plan’s objectives include boosting national content, creating new jobs, and increasing the value added in global supply chains. The decree implemented in January 2025 grants tax incentives to encourage new investments by stimulating the relocation of companies and supply chains closer to the US market. The incentives include accelerating depreciation for new investments in fixed assets ranging from 41%-91%, deducting expenses related to staff training, and deducting expenses associated with the promotion of inventions to obtain patents or initial certifications. To ensure that the nearshoring strategy is effective, negotiations with the United States must be maintained and the pressure on existing infrastructure and resources should be managed.

Panama

Panama, a key player in global trade thanks to the Panama Canal, faces a challenging transition in 2025 as it navigates external pressures and internal policy shifts. Economic growth is projected to moderate to 3.8% in 2025, down from an estimated 5.3% in 2024, due to slowing global trade, climate-related disruptions at the Panama Canal, the closure of the Cobre Panamá mine, and ongoing fiscal concerns.

The closure of the Cobre Panamá mine in 2023, which previously contributed 4-5% of the country’s GDP and 75% of its export revenues, has severely impacted Panama’s economy. The Supreme Court’s decision to declare the government’s contract with the mine’s Canadian operator, First Quantum Minerals, unconstitutional resulted in a drop in copper exports and mining revenue. The mine’s shutdown, coupled with potential international arbitration by First Quantum, adds uncertainty about the mine’s future and its broader economic consequences. Efforts to diversify Panama’s export base and attract new foreign investment are underway, but the impact remains significant.

President José Raúl Mulino, who took office in mid-2024, has prioritized fiscal responsibility, aiming to reduce the public debt, which is projected to reach 63% of GDP in 2025. His administration aims to reduce public sector spending, attract foreign investment, and modernize infrastructure, including a new railroad project linking Panama City to the Costa Rican border. The development of this infrastructure marks Panama’s increasing alignment with the U.S. following tensions with China, particularly regarding Chinese-backed projects.

Despite these challenges, Mulino’s administration has strengthened Panama’s relationship with the U.S., particularly in areas like migration and security. Panama signed an agreement with the U.S. in 2024 to address irregular migration through the Darién Gap, improving its international standing. However, the country still faces tensions with the U.S. over the Panama Canal’s neutrality, with President Trump’s claims regarding Chinese control and demands for toll-free passage adding to the diplomatic complexity.

The Panama Canal, which accounts for nearly 6% of GDP, remains a critical risk to Panama’s economic outlook. Prolonged droughts in 2023 and 2024 severely impacted water levels in Lake Gatún, leading to reduced transit capacity and a 10% drop in toll revenues. While Panama has announced a $2 billion water management plan to address climate risks, full implementation will take years, leaving the canal vulnerable to future disruptions in 2025.

Panama’s dollarized economy is sensitive to external pressures, particularly from the U.S. Inflation is expected to remain moderate at around 2%. The fiscal deficit, expected to reach 7% of GDP in 2024, underscores the need for continued fiscal reforms. Panama’s financial sector, a cornerstone of the economy, faces growing scrutiny due to new anti-money laundering regulations designed to align Panama’s financial system with the Organization for Economic Cooperation and Development (OECD) and Financial Action Task Force (FATF) standards. While these measures are crucial for maintaining access to global financial markets, they have raised compliance costs for local banks and offshore entities and may potentially reduce foreign capital inflows.

Overall, Panama’s economic prospects in 2025 depend on its ability to manage climate risks, navigate geopolitical tensions, and adapt to changing global trade dynamics. While the country faces substantial challenges, its resilient financial sector, strategic location, and ongoing infrastructure developments provide a foundation for long-term recovery. Maintaining macroeconomic stability and attracting new investments will be critical to sustaining growth beyond 2025.

Puerto Rico

Despite being a U.S. territory with a GDP projected at US$120.40bn in 2025, Puerto Rico continues to grapple with economic stagnation, high public debt, and an unreliable power grid. While federal investments in renewable energy and debt restructuring efforts aim to stabilize the economy, persistent challenges in governance, infrastructure, and labor force participation hinder sustained growth. The Puerto Rico Planning Board has projected a modest 1.3% GDP growth in 2024, signaling slow but steady recovery. However, employment levels are expected to decline by 2.7%, with only 1.08 million out of the island’s population of 3.2 million in the labor force by 2025.

A key priority for Governor Jenniffer González Colón’s administration is addressing Puerto Rico’s chronic power crisis, which has led to massive blackouts and increased energy costs. Following a New Year’s Eve blackout that left nearly all 3.2 million residents in the dark, González appointed Josué Colón as Puerto Rico’s “energy czar” to oversee the island’s power generation and transmission sectors. His administration is working to secure $18 billion in federal funding for grid modernization, yet delays in funding disbursement continue to slow progress.

Puerto Rico is undergoing major energy reforms, with a push for renewable energy expansion. The U.S. Department of Energy has pledged $1.2 billion for renewable energy projects, including solar farms, battery storage systems, and grid resilience programs. Additionally, Genera PR and Tesla signed a $767 million contract to install 430 megawatts of energy storage systems across the island, expected to reduce power outages by 90% by 2027. To curtail energy issues however, a bill supported by González has proposed adjustments to reduce interim renewable energy targets and extend the operation of Puerto Rico’s sole coal-fired power plant. This has prompted discussions about balancing energy reliability with environmental and health considerations.

Another pressing economic issue is Puerto Rico’s public debt crisis, with the Puerto Rico Electric Power Authority (PREPA) still burdened by $8.5 billion in liabilities. The Financial Oversight and Management Board (FOMB) has rejected a proposed electricity rate increase to repay creditors, instead offering a $2.6 billion restructuring plan—significantly lower than the $12 billion demanded by bondholders. To avoid raising consumer electricity costs, the government is exploring alternative funding sources, though uncertainty over debt repayment strategies remains a concern for investors.

Despite economic struggles, federal financial support continues to play a crucial role in Puerto Rico’s recovery. The U.S. government has allocated $365 million for solar and battery storage systems in public housing and healthcare facilities, alongside a $585 million loan guarantee for renewable energy expansion. However, bureaucratic hurdles, political instability, and high costs of doing business have limited the island’s ability to attract private investment.

As Puerto Rico heads into 2025, economic uncertainty, energy reforms, and debt restructuring will be the defining challenges for González’s administration. While federal investments provide short-term economic relief, long-term stability depends on resolving energy crises, strengthening fiscal policies, and attracting sustainable investment.

Venezuela

Venezuela, once Latin America’s wealthiest nation, remains mired in a prolonged economic crisis marked by hyperinflation, currency depreciation, and widespread poverty. Despite President Nicolás Maduro’s claims of defeating inflation, the country’s economic outlook for 2025 remains highly uncertain. Although Maduro claims that the country’s GDP grew over 9% last year, the IMF calculates the actual growth to be around 3%. Venezuela’s GDP contracted by over 70% since 2014, and an estimated 7.7 million people have fled the country. In recent years, Maduro’s government implemented a series of orthodox policies, including credit restrictions, lower public spending, and currency controls to combat inflation. These efforts resulted in a reduction in inflation from over 100,000% to a rate of 107% by January 2024. Maduro claims that the country’s inflation rate for 2024 was 48%, the lowest in 12 years. However, these gains may soon be reversed as Venezuela faces new challenges in the form of a weakened currency, diminished foreign reserves, and a constrained oil sector.

In mid-2024, the Venezuelan government made a dramatic shift in its exchange rate policy by allowing the bolivar to float, marking the beginning of a depreciation that saw the bolivar weaken from 36.5 to 45 bolivars per dollar. The bolivar is expected to trade at 58.7 by the end of this quarter. The depreciation of the bolivar has exacerbated challenges for businesses reliant on imports, further stoking inflation and putting downward pressure on domestic industries. Government officials, including Vice President Delcy Rodríguez, have expressed concerns about foreign exchange management, but have remained tight-lipped about the long-term strategy to stabilize the currency. With U.S. sanctions limiting access to international markets and oil revenues remaining volatile, Venezuela’s fiscal situation remains precarious.

Venezuela’s debt situation remains critical, with the country having defaulted on roughly $92 billion in commercial debt and a debt-to-GDP ratio of 148%. Efforts to restructure the debt are complicated by ongoing U.S.-led sanctions, which have restricted access to international capital markets, limiting Venezuela’s ability to import goods and manage its debt. The 2019 sanctions, including a ban on crude oil exports to the U.S., compounded the crisis. While some sanctions were eased in 2023 under a temporary deal, these measures expired in April 2024 after accusations that Maduro violated the electoral roadmap, including barring opposition leader Maria Corina Machado from the election. Despite Maduro’s declared victory, U.S. and international observers disputed the results, recognizing opposition candidate Edmundo González as the winner. In response, the U.S. imposed additional sanctions on 21 officials involved in the electoral fraud and repression.