World Bank forecasts modest growth for Latin America, highlights climate risks

The World Bank on Tuesday forecast modest economic growth in Latin America and the Caribbean, warning that risks from high energy prices and the climate phenomenon El Nino could impact the region.

In its biannual Regional Economic Update, the multilateral development organization upgraded its growth outlook for the area by 0.1 percentage point to 2.2 percent in 2026.

“Latin America and the Caribbean has the potential to achieve stronger and more ambitious growth,” said Susana Cordeiro Guerra, the bank’s regional vice president.

“Countries that have maintained sound macroeconomic frameworks, strengthened institutions, and advanced reforms are demonstrating that stronger growth is possible.”

Still, risks to the region “are tilted to the downside,” said a World Bank statement accompanying the report.

The organization cited energy price volatility as a key risk factor for inflation, with central banks likely to keep interest rates higher for longer to combat high prices.

The US-Israel war on Iran, launched in late February, has plunged the Middle East into violence and seen global energy prices skyrocket due to Tehran’s retaliatory action.

Iran has targeted Washington’s oil-producing Gulf allies and blocked a vital trading waterway, the Strait of Hormuz, affecting oil, natural gas and fertilizer supplies.

The World Bank also noted that El Nino “could further disrupt agriculture and hydropower and push up food and energy prices.”

El Nino is a natural phenomenon recurring every two to seven years owing to the warming of sea surfaces — bringing worldwide changes in winds, pressure and rainfall patterns.

Global forecasters predict this year’s event will peak at an intensity never observed in the modern era, compounding the effects of man-made climate change which drives extreme weather patterns.

The World Bank highlighted the diversity of economic outcomes and policies in the large Latin American and Caribbean region, pointing to El Salvador, Paraguay, Panama and the Dominican Republic as strong performers.

It also pointed to Argentina’s economic recovery since it suffered a hyperinflation crisis, with the economy expected to post growth for three successive years to 2027 — the first time it will have done so in nearly 20 years.

The region’s largest economies — Brazil and Mexico — were growing at or below the average, “constrained by tight monetary conditions needed to continue disinflation, policy uncertainty, and fading public investment impulses.”

The Bank’s report said that the region “urgently requires new engines of productivity” and pointed to the potential of AI technology to help provide this.

“The region has significant talent and resources,” said Cordeiro Guerra. “The priority now is to build on these strengths through consistent policies and investment that can raise productivity, create better jobs, and increase incomes.”