ECLAC Urges Reforms as LatAm Faces Debt and Inequality

Latin America and the Caribbean continue to face prolonged economic stagnation, with real GDP growth projected at just 2.2% in 2025 and 2.3% in 2026, according to the latest Economic Survey of Latin America and the Caribbean 2025 published by the Economic Commission for Latin America and the Caribbean (ECLAC/CEPAL). These figures reflect a continuation of a low-growth trend in recent years, with an average annual expansion of only 1.2% from 2016 to 2025, below the average recorded in the 1980s.

The subdued outlook is compounded by weak global economic momentum: global GDP is expected to slow from 3.3% in 2024 to 3% in 2025, affected by ongoing trade tensions, persistent geopolitical conflicts, elevated interest rates, and weakened global demand. Trade protectionism — particularly following the tariff war that began in April 2025 — is expected to weigh on export-dependent regions such as Latin America.

ECLAC notes that economic performance across the region is uneven. South America is forecast to expand by 2.7% in 2025, supported by Argentina’s recovery, improvements in Colombia, and solid growth in Paraguay. By contrast, growth in Central America and Mexico is projected to slow to 1.0% in 2025 from 1.8% in 2024, reflecting weaker external demand, especially from the United States. Guatemala, Panama, and the Dominican Republic are notable exceptions, with growth forecasts above 3.5%, driven by services, remittances, and robust domestic consumption.

The Caribbean (excluding Guyana)  is expected to see growth decline to 1.8% in 2025 and 1.7% in 2026, reflecting reduced US demand for tourism and other global services. Guyana, buoyed by hydrocarbon investments, remains a regional outlier with substantially stronger growth projections.

Employment and Inflation

Employment growth is expected to remain subdued and broadly aligned with weak economic activity: ECLAC projects employment to rise by 1.7% in 2025, led by wage employment in manufacturing and financial services. The regional unemployment rate fell from 6.7% in early 2024 to 6.0% in early 2025 and is projected to stabilize around 5.6%.

Informal employment remains pervasive, affecting nearly half of the labor force. Women’s labor force participation and employment rates continue to lag men’s by more than 20 percentage points, although the gender gap is narrowing. Real wages increased by 3.3% in 1Q25, driven primarily by gains in the formal sector.

Inflation has moderated across the region, averaging 2.9% in 2024; by mid-2025, median inflation stood at 3.9%. Subregional differences persist: Central America and Mexico reported the lowest inflation (1.6%), while South America recorded higher inflation (4.7%). Core and services inflation remain elevated in several countries due to wage adjustments and higher costs in regulated sectors.

External Accounts and Financing

The region’s current account deficit is projected at 1.1% of GDP in 2025. Weak export performance, constrained capital inflows, and rising debt-servicing costs continue to strain external accounts. Foreign direct investment remains the principal source of external financing, though an increasing share consists of reinvested earnings, raising concerns about sectoral concentration and limited technological dynamism.

Net capital inflows are expected to decline across categories, including FDI, portfolio flows, and financial derivatives. “This combination of circumstances increases the likelihood of higher external debt and more severe macroeconomic policy adjustments,” ECLAC notes.

Fiscal and Monetary Conditions

In 2025, central government revenues in Latin America are projected to rise marginally to 18.7% of GDP while spending holds near 21.8% of GDP; interest payments are expected to increase to 3.0% of GDP. Public debt remains elevated despite gradual declines, averaging 50.2% of GDP in Latin America and 68.4% of GDP in the Caribbean as of early 2025.

Monetary policy across the region remains restrictive, with central banks keeping interest rates above pre-pandemic levels despite easing headline inflation. Currency volatility persists amid shifting global dynamics, heightened geopolitical risk, and fluctuations in the US dollar. Net international reserves rose to US$878 billion in 1Q25, supported by remittance inflows and export revenues.

Given the prolonged stagnation and heightened vulnerability to external shocks, ECLAC emphasizes the need to mobilize resources for development financing. “The region must overcome the traps of low growth, high inequality, limited social mobility, and persistent structural gaps,” said José Manuel Salazar-Xirinachs, Executive Secretary, ECLAC.

The report outlines three strategic pillars for financing development:

1. Mobilizing Domestic Resources: Improve public investment, reduce tax evasion, and enhance tax system progressivity.

2. Mobilizing External and Private Capital: Reform international financial architecture, increase private investment through thematic bonds and debt swaps, and redefine criteria for Official Development Assistance eligibility.

3. Strengthening Development Banks: Expand their lending capacity and promote large-scale projects aligned with the Sustainable Development Goals (SDGs) through innovative public-private mechanisms.
    

Salazar-Xirinachs concluded: “Facing this challenge requires articulating a long-term strategic vision to support inclusive and sustainable development, while adopting short-term macroeconomic policies to mitigate risks and reduce exposure to external shocks.” Amid slowing global growth, constrained domestic demand, and persistent external vulnerabilities, the region’s economic trajectory for 2025–26 remains uncertain, making coordinated strategic planning and resource mobilization increasingly urgent.