Latin America And The Caribbean Holds Steady While Top Performers Show A Path To Higher Growth

(MENAFN- Caribbean News Global)

• Sound policy choices are driving faster growth in several countries; AI could improve productivity, if firms use it well

WASHINGTON, USA - Latin America and the Caribbean is projected to grow 2.2 percent in 2026, broadly in line with the rate of 2.4 percent recorded in 2025, according to the World Bank Group's Latin America and the Caribbean Economic Update. Although average regional growth remains modest, diverging country paths show that a stronger performance is possible.

Several countries making sound and durable policy choices are delivering stronger results, including faster growth consistently above 3 to 4 percent, more investment, and greater market confidence.

El Salvador and Paraguay continue to outperform the regional average, supported by improved security conditions, fiscal consolidation, and robust private investment. Panama and the Dominican Republic have sustained strong growth on similarly durable policy foundations. Argentina is on a similar trajectory, projected to expand for three consecutive years from 2025 to 2027, the first time in nearly two decades, driven by fiscal adjustment, tax reforms, and a more open economy.

“Latin America and the Caribbean has the potential to achieve stronger and more ambitious growth. Countries that have maintained sound macroeconomic frameworks, strengthened institutions, and advanced reforms are demonstrating that stronger growth is possible,” said Susana Cordeiro Guerra, World Bank vice president for Latin America and the Caribbean.“The region has significant talent and resources. The priority now is to build on these strengths through consistent policies and investment that can raise productivity, create better jobs, and increase incomes.”

The risks to the region are tilted to the downside. Energy price volatility could stall disinflation and keep central banks cautious, prolonging the high real interest rates that constrain credit and investment. High debt and interest burdens continue to limit fiscal space and crowd out public investment. El Niño could further disrupt agriculture and hydropower and push up food and energy prices.

The report examines how artificial intelligence could raise productivity while reshaping work across the region. Firms are already adopting AI broadly, though rarely in ways that reach their core business processes. Among the wider population, a median of 17 percent of working-age adults across the region report using GenAI tolls, roughly half the rate in the US and Canada. In both cases, the main barriers to productive use are not cost or access, but managerial know-how, workforce skills, and firms' capacity to reorganise around new tools.

“AI is already here. The question is whether the region can use it productively,” said Carlos Rodriguez-Castelan, World Bank acting chief economist for Latin America and the Caribbean.“A powerful tool is less relevant if workers and firms lack the capacity to act on what it produces. Governments that invest now in skills and firm capabilities will likely see real gains.”

The report identifies that generative AI is already changing cognitive work: roughly 8 percent of the workforce holds high-skill, knowledge-intensive jobs that could be enhanced by AI, while a similar share of the workforce, around 10 percent, works in routine cognitive occupations whose tasks are more exposed to automation. A second wave could reach physical work over time, as automation hardware becomes cheaper. About a quarter of workers hold routine manual jobs that may be exposed.

The report recommends building firms' capabilities, expanding short-cycle and technical training, and modernising digital government and data systems. It also highlights the potential of“small AI,” low-cost applications adapted to local needs that are already showing promise in areas from education and telemedicine to public service delivery. Small AI could also be a powerful tool for small and medium enterprises, farmers, and the broader population, putting scarce expertise within reach of millions.

The complete report can be accessed here.

Executive summary

Growth in Latin America and the Caribbean (LAC) remains modest. Regional GDP is projected to expand 2.2 percent in 2026, broadly in line with 2.4 percent in 2025, a sign of resilience in absorbing external shocks. Beneath the regional average, paths diverge. Countries making sound and durable policy choices are delivering stronger results: faster growth, more investment, and greater market confidence. Commodity exporters have benefited from still-high prices and manufacturing exports have held up despite trade policy volatility, while food- and energy-importing economies, particularly in the Caribbean, face higher import costs and softer tourism demand.

Across the region, elevated global uncertainty, restricted fiscal space, and high real borrowing costs weigh on private demand. Risks remain tilted to the downside. Energy price volatility could stall disinflation and keep central banks cautious, while El Niño could disrupt production and push up food and energy prices. Yet modest growth reflects the current policy equilibrium, not the region's potential. The region's stronger performers, whether long-standing or newly reforming, show that higher growth is possible even without a commodity boom.

The LAC region urgently requires new engines of productivity. The rapid global diffusion of artificial intelligence (AI) offers a potential catalyst. However, a critical distinction must be drawn: Digital access does not guarantee productive use, and algorithms do not automatically generate aggregate productivity. If AI is to propel the region's growth trajectory rather than amplify its historical inequalities, LAC must overcome severe structural barriers-chronic informality, delayed capital mechanisation, and deep deficits in managerial and human capital.

Chapter 1 of this report reviews the recent macroeconomic and social evolution of the region, highlighting divergent growth paths, the challenges of traversing the“last mile” of inflation reduction, modest regional growth, tight fiscal space under the burden of high interest costs, and persistent vulnerabilities in labor markets and education.

Chapter 2 unpacks the impacts of the rise of AI, highlighting its potential to act as a powerful multiplier for human capabilities and a catalyst for new engines of productivity. As AI diffuses rapidly across LAC, it offers an opportunity to drive economic growth, solve local challenges, and help the region reach the technological frontier. However, to understand whether AI will propel the region's growth or cement its exclusion, chapter 2 dissects the transition across three interconnected dimensions: labor, firm, and government bottlenecks. It argues that the region's binding constraint is not access to frontier models but its absorptive capacity. Bridging the gap between algorithmic promise and tangible economic reality requires deliberate action to build organisational capital and manage the staggered shocks of cognitive and physical automation.

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