Latin America in 2026: Between promise and pressure, the answer is optionality

Why has the region failed to monetize its competitive advantages? The answer lies in a complex interplay of political instability, fiscal fragility, persistent inequality and chronic insecurity. These factors have acted as a hidden tax on growth, eroding investor confidence, raising the cost of capital, and stifling innovation and entrepreneurship. The costs are not merely theoretical: Crime and violence alone cost the region an estimated 3.4% of GDP annually,¹ while fiscal deficits and policy volatility have deterred long-term investment and driven capital flight.

Yet, as we look toward 2026, there are compelling reasons to believe optionality is emerging for a region that has been long ignored. A confluence of structural shifts—both internal and external—is creating a window of opportunity that is fundamentally different from past cycles. The global transition to digital and green economies has placed a premium on critical minerals, energy and food security—areas where Latin America is exceptionally well positioned. Geopolitical tensions and the reconfiguration of global supply chains are driving the evolution of globalization into a new era of regional trade blocs, where economic rationale is now balanced by ideological alignment—the evolution of offshoring into nearshoring and friendshoring.

At the same time, we are starting to see hints of a swing of the political pendulum, from extreme left toward the center and center-right, which, if materialized, could bring greater policy predictability and institutional maturity. New governments are increasingly focused on leveraging global tailwinds rather than being buffeted by them, and there is a growing recognition that sustainable growth requires not just resources, but also security, governance and human capital.

This report explores why this time could be different for Latin America. We examine the region’s historical narrative, the global context driving opportunity, the sectoral opportunities that are emerging to capitalize on Latin America’s strategic ascent, and the pivotal political and macroeconomic shifts underway.

The paradox of plenty

Latin America’s story is one of paradox. The region is home to over 40% of the world’s copper reserves, more than half of known lithium reserves, and vast stores of agricultural and energy resources. Countries such as Brazil, Argentina, Chile and Peru are global players in soybeans, beef, coffee, copper and lithium. Yet, despite this abundance, the region’s share of global GDP and manufacturing value added remains modest—around 7.1% and 7.5%, respectively.²

Despite this exposure, sustained growth and broad-based prosperity have remained elusive. Over the past two decades, Latin America’s real GDP growth has lagged global market averages, with repeated boom-bust cycles tied to commodity prices.

The vicious cycle behind underperformance

The region’s underperformance is rooted in a combination of political instability, fiscal fragility, inequality and insecurity. Political volatility has led to frequent policy reversals, undermining long-term investment. Fiscal deficits and procyclical spending have left countries vulnerable to external shocks. Inequality remains among the highest in the world, fueling social unrest and limiting the development of a robust middle class. The legacy of colonialism, persistent inequality, and the coexistence of wealth and marginalization have enabled violent actors to capture parts of the state, turning insecurity into a self-reinforcing equilibrium that shapes political stability and economic incentives.

Political instability and inequality are key constraints. According to the OECD Trust Survey conducted in 10 Latin American and Caribbean countries in 2023 and 2025, only 35% of people report high or moderately high trust in their national governments, while nearly half (48%) express low or no trust. This level of trust is notably lower than the average of OECD countries, reflecting the region’s ongoing struggles with governance and institutional credibility. Meanwhile, inequality remains among the highest in the world, with the Gini coefficient for the region averaging 0.46, compared to 0.32 in OECD countries. This persistent inequality fuels social unrest, undermines social cohesion and limits the development of a robust middle class.

Partly attributable to a permanent struggle to bridge the inequality gap, procyclical fiscal policies, high debt burdens and limited fiscal space have left countries vulnerable to external shocks. At the same time, weak tax collection and narrow revenue bases limit the ability of governments to invest in education, infrastructure and technology, which are essential for raising long-term productivity. This pattern results in chronic underinvestment in human capital and public goods, reducing the region’s capacity to take advantage of global opportunities and keeping growth from reaching its full potential.

Fiscal imbalances can be addressed by cutting spending or increasing tax revenues. The most effective way to boost revenues is not just through closing loopholes or raising taxes on current payers, but by broadening the tax base—primarily through policies that attract investment and create jobs, thereby expanding the number of taxpayers. Critically, insecurity acts as a hidden tax on growth. According to the IDB, crime and violence cost Latin America and the Caribbean about 3.4% of GDP, equivalent to 80% of the region’s public education budgets, double its social assistance spending and 12 times the combined R&D budgets of these countries. Nearly 47% of this cost comes from private firms’ spending on security and mitigation, as companies routinely pay protection fees, absorb losses from theft, and maintain costly surveillance and insurance systems. These burdens compress profit margins, discourage investment and, in many cases, drive firms to pass higher costs to consumers or delay expansion plans, or even exit high-risk markets altogether.

Insecurity in the region has accelerated the “talent flight,” with many countries recording high scores on the Human Flight and Brain Drain Index (HFBDI) in 2024, signaling persistent emigration of skilled workers and entrepreneurs. This erosion of human capital reduces innovation, weakens the formal sector and increases dependency on lower-value economic activity, reinforcing the very conditions that allow organized crime to thrive.

Emigration also makes countries more dependent on remittances, which becomes a double-edged sword. Remittances have become a stabilizer for household demand in several Latin American economies, but they also create a structural vulnerability. In countries with persistent insecurity and limited formal sector job creation, emigrants finance a large share of domestic consumption. These inflows support household spending, but they also make consumption increasingly dependent on external cyclicality, especially on the U.S. labor market and immigration policy. When U.S. employment slows, remittances fall sharply, creating immediate pressure on local consumption, retail sales and fiscal revenues. Rather than reflecting domestic productivity or rising wages, consumption in parts of the region is increasingly tied to external income, masking the underlying labor market weaknesses and reinforcing the cycle of immigration.

If not before, why now?

Despite these challenges, several factors are converging to create a new narrative. Global dynamics are shifting in ways that play directly to Latin America’s strengths. A growing focus on digital along with green transitions are laying the groundwork for more sustainable growth, while the region’s demographic profile remains favorable, with a young and urbanizing population. Furthermore, optionality is emerging on the political front, with the regional pendulum possibly swinging from extreme left to administrations that are friendlier to institutional reforms, improved macroeconomic management, or at least greater private participation.

Powering up the AI revolution

The world is undergoing a profound transformation, driven by the dual imperatives of digitalization and decarbonization. The rapid adoption of artificial intelligence, electric vehicles, renewable energy and advanced manufacturing is fueling an unprecedented demand for critical minerals—lithium, copper, nickel, cobalt and rare earth elements. The United States, the European Union and China are all seeking to secure access to these minerals, and Latin America, with its vast reserves, is at the epicenter of this global race. This allows governments and companies in the region unprecedented leverage in trade negotiations and investment partnerships. The region’s ability to move up the value chain—processing, refining and even battery manufacturing—will determine how much of the economic rent it can capture.

• Lithium: The “lithium triangle” of Chile, Argentina and Bolivia holds over 50% of the world’s known reserves.³ Chile and Argentina are already among the top three global producers, and Bolivia is reforming its regulatory framework to attract investment and technology partners. As battery demand surges, these countries are poised to become indispensable to the global supply chain.
• Copper: Chile, Peru and Mexico together account for nearly 40% of global copper production.⁴ Copper is essential for electrification, grid expansion and data center construction—core enablers of the AI and green revolutions. The International Energy Agency (IEA) projects a 50% increase in copper demand by 2030, with Latin America as the primary source of incremental supply.
• Nickel and rare earths: Brazil is emerging as a significant player in nickel and rare earths, both critical for batteries and high-tech manufacturing. Brazil’s rare earth mining industry is ramping up, with new investments targeting the growing needs of the EV and wind turbine sectors.

Beyond critical mineral inputs, Latin America could play a key role in the green energy revolution. The region boasts one of the world’s cleanest electricity mixes, with renewables accounting for 60% of generation. Brazil leads in wind and hydropower, while Chile is a solar powerhouse. The region is also attracting green finance: Issuers in the region have raised more than $164 billion in international green and sustainable bonds since 2014 to 2024.⁵ Countries are also investing in grid modernization, storage and cross-border interconnections to support the energy transition.

Latin America and the Caribbean also remains a pivotal player in global oil and fossil fuel markets, leveraging substantial reserves and dynamic growth across several key producers. Venezuela holds the world’s largest proved crude oil reserves—around 303 billion barrels—though production has lagged in recent years due to infrastructure decay, underinvestment and international sanctions. However, recent statements from U.S. President Donald Trump signaling openness to renewed engagement by U.S. oil companies have revived market discussions around potential investment and capacity recovery in Venezuela’s oil sector. While we share the renewed optimism surrounding Venezuela’s oil sector, we believe any meaningful recovery in production and investment is likely to be a gradual process. Structural challenges and the need for sustained policy shifts mean that significant impacts may unfold over the longer term.

Brazil has emerged as the region’s largest oil producer, and now ranks among the world’s top 10, with output surpassing four million barrels per day in late 2025. Guyana’s offshore Stabroek Block has transformed the country into a major energy exporter, with production expanding nearly tenfold since 2020 and expected to exceed one million barrels per day by 2027 as new projects come online. In Argentina, the Vaca Muerta shale formation has reversed years of decline, with unconventional development now driving the majority of production and output projected to reach 810,000 barrels per day.⁶ Other countries, including Mexico and Colombia, continue to contribute to the region’s fossil fuel base, with Colombia also ranking among the world’s largest coal exporters.

Collectively, Brazil, Guyana and Argentina accounted for about 28% of global crude production in 2025, underscoring Latin America’s growing footprint in world energy markets. This expansion is supported by robust investment in offshore developments, shale production and export infrastructure, positioning the region as a critical supplier in the evolving global energy landscape.⁷

Feeding the world

The Food and Agriculture Organization (FAO) expects that global food demand could increase anywhere from 59% to 98% by 2050, representing an astounding increase in food demand over the next three decades, and Latin America is a global breadbasket. The region overall accounts for 16% of total global food and agriculture exports, and has the highest share of net agricultural exports in the world.⁸

Latin America is also one of the few parts of the world with significant resources of unexploited agricultural land, with over five million square kilometers of arable land, 23% of the world’s forest areas, and between 60% and 70% of all life forms on Earth. It receives 29% of the world’s rainfall and contains about 30% of the world’s renewable water resources.⁹ Due to this natural resource advantage, the Latin American region is likely to continue to play a pivotal role in global food production and exports in the future, especially Brazil, Argentina, Paraguay and Uruguay, which currently lead in soybeans, beef, corn and sugar production. Trade agreements and logistics improvements are opening new markets in Asia and the Middle East, boosting domestic appetite for greater investments in the space as the opportunity is amplified by access and greater technology adoption.

Supply chain diversification: From offshoring to nearshoring to friendshoring

The COVID-19 pandemic, U.S.-China trade tensions and the war in Ukraine have exposed the vulnerabilities of global supply chains. Companies are now prioritizing resilience, security, proximity and ideological alignment versus pure margin optimization, ushering the true meaning of the evolution of offshoring into today’s focus on friendshoring.

• Mexico is among the world’s top nearshoring destinations, with FDI to the manufacturing, electronics and automotive sectors surging post-pandemic. The USMCA provides a stable framework, and Mexico’s logistics infrastructure, skilled labor and proximity to the United States make it a natural hub for North American supply chains. Shipping times from Mexico to the United States are 1–2 days by truck or rail, compared to 20–40 days from China by sea. This enables just-in-time manufacturing and reduces inventory costs.
• Central America is attracting investment in textiles, electronics and medical devices, leveraging trade agreements such as CAFTA-DR and competitive labor costs.
• South America is seeing renewed interest in agribusiness, mining and renewable energy, as companies seek to diversify away from Asia and Russia.

Demographics and growing access

Latin America’s edge is not just in resources or geographical location, but also in demographics and consistently improving access for the population. The region’s median age is 31.3, compared to 39.6 in China and 42.5 in Europe.¹⁰ This “demographic dividend” means a growing labor force and consumer base for decades to come. A younger population also brings greater appetite for innovation and disruption. Thus, Latin America has become one of the fastest-growing venture capital markets globally, with over $4.5 billion deployed in 2024.¹¹ Mobile banking, fintech and e-commerce are expanding rapidly. According to the World Bank, internet penetration in Latin America and the Caribbean reached 82% in 2024, up from 49% a decade ago. Brazil and Mexico are among the largest fintech markets in the region by number of startups and investment. According to IV Fintech Report by the IDB and Finnovist, the fintech ecosystem in Latin America and the Caribbean has grown by 340% from 2017 to 2023.

2026: Politics meets macro

After a surprisingly resilient 2025, when GDP growth in Latin America is expected to have reached 2.3% despite trade wars and policy uncertainty, consensus expects regional GDP growth at 2.1% for 2026, with some divergence across countries. Mexico and Brazil are expected to grow at 1.3% and 1.7%, respectively, the former accelerating from 2025’s near-zero growth, while the latter is expected to consolidate below-trend growth on the back of a consumption slowdown. Chile and Peru are projected to grow at 2.2% and 3%, respectively, banking on domestic consumption resilience as well as strong terms of trade of the mining sector. Argentina, after a strong GDP rebound expected in 2025, is forecasted to decelerate toward 3.1% growth in 2026, while activity in Colombia is expected to accelerate only marginally to 2.8%, as a pre-electoral fiscal push is mostly offset by dwindling private investments.¹²

Consistent with a mild regional growth deceleration, the worst appears to be over in terms of inflationary pressures. Regional inflation is stabilizing, with most countries expected to see headline rates between 2% and 5%,¹³ within most central banks’ target ranges, though closer to the upper bound. Brazil and Mexico have managed to anchor expectations through credible central bank action, while Colombia continues to face higher inflation due to structural imbalances. Argentina, through painful economic measures, has staged a massive recovery, driving inflation to revert below 2018 levels, after hitting almost 290% in 2024.¹⁴ The region’s commodity exporters are benefiting from higher terms of trade, which has helped offset imported inflation from food and energy. Consensus expects regional inflation to ease toward 3.7% in 2026, supported by earlier policy tightening and a return of inflation expectations to more stable levels.

Central banks in the region have generally been ahead of the curve, tightening policy early and later embarking on a gradual easing cycle as inflation expectations become anchored. Most central banks in the region continued to ease rates in 2025. Nonetheless, fiscal concerns and inability to anchor inflation kept monetary policy in a restrictive mode in Brazil, with the central bank actually hiking 275 basis points in 2025.¹⁵ In 2026, consensus anticipates few cuts left, with Brazil taking the lead (and catching up to peers in the rate-cutting cycle) with nearly 250 basis points in easing.¹⁶ The market is not pricing in any additional cuts in either Colombia and Peru, with only one more cut left in Chile.

Despite less easing being supportive for Latin American currencies, we see FX rates in the region being range bound, on two fronts. The first is a more neutral view on the USD after a painful 2025, as well as challenging macroeconomic fundamentals, more than offsetting the “benefit” of no more rate cuts. The other is related to persistent fiscal deficits across the region, with Argentina being the sole exception. While this year consensus expects deficits to compress by an average of 25 basis points across the six largest economies in the region,¹⁷ deficits will still remain significantly above historical averages for Brazil and Mexico, Latin America’s largest economies.

However, the most interesting thing to discuss in 2026 for Latin America won’t be macro developments, but rather whether expectations for a swing in the political arena materialize. Optionality is the key word.

Political realignment: Will the pendulum swing to the center?

2026 is a pivotal year for Latin American politics, with elections in Costa Rica, Brazil, Peru and Colombia, in continuation of 2025’s heavy electoral calendar with processes in Chile, Ecuador, Bolivia and Argentina. In fact, the year has started with a bang, with U.S. intervention in Venezuela marking an inflection point for one of Latin America’s most entrenched authoritarian regimes.

The region is experiencing a notable shift toward centrist and pragmatic leadership, reflecting voter fatigue with populism and years of macro instability, fueled by a growing demand for stability, security and growth.

While not the first to move from left to right, Argentina is probably the region’s main example. After nearly 50 years of persistent economic imbalances and financial crisis, the country spent two decades under mostly Peronist, left-leaning administrations, marked by heavy state intervention, capital controls and expansionary fiscal policies. By late 2023, inflation had soared above 200% annually, reserves were depleted, and investor confidence was at a low. The election of Javier Milei in 2023 marked a dramatic political and economic shift. Milei’s radical reform agenda—reducing public spending and subsidies, partially liberalizing the exchange rate and introducing the RIGI framework for large investments—has helped put Argentina back on the map for international investors. Inflation has moderated, and fiscal sustainability now seems achievable, with international markets welcoming the change and a $20 billion credit line facility offered by the U.S. government.

The first to move from left to right and stay there was actually Ecuador. For over a decade, the country was governed by left-leaning, populist administrations, most notably under Rafael Correa. Correa’s policies initially reduced poverty and inequality, but eventually led to fiscal imbalances and a deteriorating investment climate. Lenín Moreno, his successor, began as a Correa ally but gradually shifted toward the center, and Guillermo Lasso’s presidency marked a clear pivot to market-friendly policies. Political challenges, however, led Lasso to dissolve the National Assembly and call for early elections. The snap elections in late 2023 brought Daniel Noboa, a young, center-right businessman, to power. Noboa’s pragmatic, market-oriented approach has focused on restoring security, improving the investment climate and continuing fiscal reforms. Despite persistent insecurity, international markets have regained faith in Ecuador, as reflected in the sharp compression of sovereign spreads.

Last year, both Bolivia and Chile have demonstrated the region’s political pendulum swing. In Bolivia, the 2025 elections ended nearly 20 years of left-wing rule, bringing in centrist/center-right president Rodrigo Paz, who campaigned on gradual, pro-market reforms, closer ties with the United States and a more business-friendly approach than his predecessors Evo Morales and Luis Arce. Years of economic stagnation, fiscal imbalances and corruption allegations set the stage for this political shift. Meanwhile, Chile, long considered one of Latin America’s most stable democracies, experienced massive social unrest in 2019, which led to the election of Gabriel Boric, a young leftist, in 2021. Boric’s promises of social reform and a new social contract have been challenged by low growth, weak job creation and rising crime. In December 2025, Chileans elected José Antonio Kast, leader of the Republican Party, in a runoff against Jeannette Jara of the Communist Party, delivering the country’s most decisive right-wing victory since the return to democracy in 1990, as voters prioritized security, migration control and economic stability over continuity with the previous leftist agenda. Challenges ahead for Kast are delivering a significant reduction on Chile’s red tape to attract productive investments, both from domestics and foreigners alike, as well as balancing public finances by reducing the size of the state.

While not occurring through traditional means, after 12 years of dictatorship, Venezuela now stands on the verge of its own political transformation. U.S. forces conducted a targeted military operation in Venezuela, capturing Nicolás Maduro and his wife, Cilia Flores, who now face drug and weapons charges in U.S. courts. In the immediate aftermath, Delcy Rodríguez—formerly vice president—was sworn in as interim leader. Inside Venezuela, the situation remains tense but relatively stable. The United States has signaled its intent to play a significant role in Venezuela’s transition, particularly in the oil sector. Just days after the capture, President Donald Trump announced that interim authorities would transfer between 30 and 50 million barrels of sanctioned oil to the United States, to be sold at market value with proceeds managed by the U.S. government for the benefit of both Venezuelans and Americans. These developments indicate that the immediate focus of the transition has shifted toward monetizing Venezuela’s oil assets, with cooperation on oil revenues and oversight of the energy sector emerging as central elements of the interim strategy—potentially taking precedence over political reforms in the near term.

The political and economic landscape in Brazil has oscillated between left-leaning and market-oriented administrations over the past two decades. The Workers’ Party (PT) under Lula and Rousseff expanded social programs and relied on state-led development, but also increased fiscal deficits and state intervention, eventually leading to a crisis of confidence. The Temer and Bolsonaro governments shifted toward market-friendly policies, including pension reform, privatizations, deregulation and granting central bank independence, which helped restore some investor confidence and stabilize public finances. However, persistent challenges such as social inequality and political polarization led to a return to the PT in 2022. Lula’s current administration has increased spending and state intervention, pushing the fiscal deficit higher and sparking frustration over economic weakness, insecurity and contentious relations with the United States. As the 2026 election approaches, Lula faces lower approval ratings and rising competition from right-wing figures such as Tarcisio de Freitas and Flavio Bolsonaro. The political environment remains highly uncertain, with risks around fragmentation within the right and the potential for further volatility.

Colombia was a latecomer to the region’s “pink wave,” electing Gustavo Petro as its first leftist president in 2022. Petro campaigned on social justice and reform, aiming to reduce inequality and shift away from conservative macro governance. However, his administration has struggled to pass major reforms due to limited congressional support and political fragmentation. Economic growth has been steady, but underlying fundamentals have deteriorated, with investments stalling and inflation remaining stubbornly high. Petro’s confrontational style, frequent clashes with Congress, and a series of corruption allegations have further eroded public trust. Approval ratings for Petro have dropped from around 50% after the 2022 elections to the mid-20s, with disapproval hovering near 60%. As Colombia approaches its next elections, social and economic discontent is rising, and the traditionally conservative electorate may favor a shift back to the center or right, especially if opposition parties can unify behind a credible candidate to challenge Petro’s core voter base.

The dramatic U.S. intervention in Venezuela and the removal of Maduro could have significant spillover effects on Colombia’s political landscape as it heads into elections. First, the operation underscores heightened U.S. focus on regional security and anti-narcotics efforts, with Colombia—Venezuela’s neighbor and a key U.S. ally—likely to face increased pressure to deliver results on drug trafficking and border security. Second, the instability in Venezuela may amplify Colombian voters’ concerns about security, migration and the risks of leftist governance, especially given Colombia’s own struggles with political polarization and economic challenges under President Petro. Finally, the U.S. administration’s assertive stance may embolden Colombia’s center-right and conservative opposition, which could leverage fears of regional contagion and instability to rally support for a shift away from Petro’s leftist agenda. In sum, the Venezuela events are likely to reinforce calls for pragmatic, security-focused leadership in Colombia, and could tip the electoral pendulum back toward the center or right if opposition parties can unify around a credible candidate.

Conclusion: Why this time is different

Latin America stands at a crossroads. The convergence of global demand for critical resources, a shift toward political moderation and institutional maturity, and the region’s unique demographic and geographic advantages are creating a window of opportunity that is fundamentally different from past cycles. This does not come without risks. Investments must account for potential regime changes and subsequent policy reversals, while escalating trade tensions create volatility in regional currencies. Additionally, operations in regions with active military operations or elevated security risks require enhanced insurance, secure logistics and contingency planning for potential disruptions. And all of this is dependent on the permanence of trade agreements, bilateral or multilateral, which—as has been made evident recently—is not guaranteed. Finally, investors would be amiss to ignore infrastructure bottlenecks and the need for continued investment in ports, roads and digital connectivity. Nonetheless, we are hopeful that the region will capitalize on the current global juncture and monetize what has been a longstanding promise, always falling short of becoming a reality. Torn between the promise and the pressure, optionality keeps us positive.