By Kenton X. Chance
WASHINGTON, DC — Economic growth in Latin America and the Caribbean is projected to moderate from 2.4 % in 2024 to 2 % in 2025, before rebounding to 2.4 % in 2026, the International Monetary Fund (IMF) said on Tuesday.
The forecasts, released in the World Economic Outlook (WEO), are revised downward by 0.5 percentage point for 2025 and 0.3 percentage point in 2026 compared with those in the January 2025 WEO.
The figures were released here during the IMF’s Spring Meetings, taking place through Friday against the backdrop of the trade tariff announced by US President Donald Trump in February and expanded in April.
In Latin America and the Caribbean, the revisions owe largely to a significant downgrade to growth in Mexico, by 1.7 percentage points for 2025 and 0.6 percentage point for 2026.
This is lower than the projections in the January 2025 WEO Update, by 0.5 percentage point for 2025 and 0.3 percentage point for 2026, with downward revisions for nearly all countries.
The downgrades are broad-based across countries and reflect in large part the direct effects of the new trade measures and their indirect effects through trade linkage spillovers, heightened uncertainty, and deteriorating sentiment.
This reflects weaker-than-expected activity in late 2024 and early 2025 as well as the impact of tariffs imposed by the United States, the associated uncertainty and geopolitical tensions, and a tightening of financing conditions.
Economic Counsellor and Director of the IMF’s Research Department, Pierre-Olivier Gourinchas, told a press conference held to release the outlook that the IMF’s recommendations call for prudence and improved collaboration.
“First the obvious priority is to restore trade policy stability. The global economy needs a clear, stable and predictable trading environment, one that addresses some of the long-standing gaps in international trading rules.”
He said monetary policy will need to remain agile and respond by tightening where inflation pressures re-emerge while easing, where weak demand dominates.
“Monetary policy credibility will be key, especially where inflation expectations might deanchor and central bank independence remains a cornerstone,” Gourinchas said.
Many fiscal authorities will face new spending needs to bolster defense spending or to offset the trade dislocations likely to come.
“Some of the poorest countries also hit with reduced official aid could experience debt distress. Yet debt levels are still elevated, and most countries still need to rebuild fiscal space, including by implementing structural reforms.
“Support, where needed, should remain narrowly targeted and temporary. It is easier to turn on the fiscal cap than to turn it off. Where new spending needs are permanent as for defense spending in some countries, planning for offsetting cuts elsewhere or new revenues should be made.”
He said that while some of the grievances against the trading system have merit, “we should all work towards fixing the system so that it deliver better opportunities for all”.
Gourinchas said the landscape has changed since the last WEO update in January.
“We’re entering a new era as the global economic system that has operated for the last 80 years is being reset.”
He noted that since late January, many tariff announcements have been made, culminating on April 2, with near-universal levies from the United States and counter-responses from trading partners.
“The US effective tariff rate has surged past levels reached more than 100 years ago. Tariff rates on the US have also increased,” Gourinchas said, adding that beyond the abrupt increase in tariffs, the surge in policy and uncertainty is a major driver of the economy.
He said that if sustained, increasing trade tensions and uncertainty will slow global growth significantly, adding that reflecting this complexity, the WEO presents a reference forecast which incorporates policy announcements up to April 4 by the US and trading partners.
“Under these reference forecasts, global growth will reach 2.8 % this year and 3 % next year, a cumulative downgrade of about 0.8 percentage point relative to our January 2025, WEO update.”
Gourinchas said the WEO also offers a range of forecasts under different policy assumptions.
“Under an alternative path that excludes the April tariff announcements, global growth would have seen only a modest downgrade to 3.2 % this year. “
He said the IMF also used a model-based forecast to incorporate the temporary suspension of most tariffs announced on April 9, together with the increase in bilateral tariffs between China and the US to prohibitive levels.
“This pause, even if extended permanently, delivers a similar growth outlook as a referenced forecast, 2.8 % even if some high-tariffed countries could benefit.”
Gourinchas said that while global growth remains well above recession levels, all regions are negatively impacted this year and next and the global disinflation process continues, but at a slower pace, with inflation revised up by 0.1 percentage point in both years.
“These trade tensions will greatly impact global trade. We project that global trade growth will be more than cut in half, from 3.8 % last year to 1.7 % this year.”
He noted that the tariffs will play out differently in different countries, adding that for the United States, they represent a supply shock that reduces productivity and output permanently and increases price pressure temporarily.
“This adds to an already weakening outlook, and leads us to revise growth down by 0.9 percentage point to 1.8 % with a 0.4 percentage point downward from the tariffs only, while inflation is revised upwards.
“For trading partners, tariffs act mostly as a negative external demand shock, weakening activity and prices, even if some countries could benefit from trade diversion. This is why we have lowered our China growth forecast this year to 4 % when inflation is revised down by 0.8 percentage point, increasing deflationary pressures.”
The report said the global economy is at “a critical juncture”, adding that signs of stabilisation were emerging through much of 2024, after a prolonged and challenging period of unprecedented shocks.
“Inflation, down from multi-decade highs, followed a gradual though bumpy decline toward central bank targets Labor markets normalised, with unemployment and vacancy rates returning to
pre-pandemic levels. Growth hovered around 3 % in the past few years, and global output came close to potential.”
The WEO, however, said major policy shifts are resetting the global trade system and giving rise to uncertainty that is once again testing the resilience of the global economy.
Gourinchas said all countries are negatively affected by the surge in trade policy and uncertainty as businesses cut purchases and investments while financial institutions reassess their borrowers’ exposure.
“Uncertainty also increases because of the complex sectoral disruptions that tariffs could cause, up and down supply chains, as we saw during the pandemic.”
The effect of these shocks on exchange rates is complex as the tariffs could appreciate the US dollar, as in previous episodes.
However, greater policy uncertainty, lower US growth prospects and an adjustment in the global demand for dollar assets are weighing down on the dollar.
“Risks to the global economy have increased and are firmly to the downside,” Gourinchas said, adding that while the IMF was not projecting a global downturn, the risks that may happen this year have increased substantially from 17 % back in October to 30 % now.
“An escalation of trade tensions would further depress growth. Financial conditions could also tighten as markets react negatively to diminished growth prospects and increased uncertainty. On the flip side, growth prospects could immediately improve if countries ease from their current trade policy stance and promote a new, clear and stable trade environment,” Gourinchas said.
He said addressing domestic imbalances can also help raise growth while contributing significantly to closing external imbalances.
“For Europe, this means spending more on public infrastructure to accelerate collectivity growth for China, it means boosting support for domestic demand, while for the US, it means stepping up fiscal consultation.”
WEO said that globally, the growth impact of tariffs in the short term varies across countries, depending on trade relationships, industry compositions, policy responses, and opportunities for trade diversification.
“Fiscal support in some cases (for example, China, euroarea) offsets some of the negative growth impacts,” the WEO said.