On Tuesday, the World Bank released its latest *Latin America and the Caribbean Economic Update*, painting a mixed picture for regional economic performance through 2026. After recording 2.4% growth in 2025, the region is projected to see aggregate growth stall at just 2.2% this year, marking a prolonged period of modest expansion that falls short of transformative development goals. While the regional average remains subdued, the report highlights stark disparities in growth trajectories across individual economies, with policy choices and institutional strength emerging as key differentiators.
Several economies stand out as outperformers, bucking the regional slowdown trend. El Salvador and Paraguay have exceeded average growth forecasts, a result the World Bank attributes to improved public safety, successful fiscal consolidation, and robust inflows of private investment. Panama and the Dominican Republic also record solid, above-average growth rates. Most notably, Argentina is on track to notch three consecutive years of economic expansion from 2025 through 2027, a milestone not achieved in nearly two decades. The World Bank links this turnaround to fiscal adjustments, broad tax reforms, and a shift toward a more open trade and investment regime.
Susana Cordeiro Guerra, World Bank Vice President for Latin America and the Caribbean, emphasized that the performance of high-growth countries offers a clear blueprint for wider progress. “Higher, sustained growth is within reach when stable macroeconomic policy is paired with stronger institutions, targeted structural reforms, and deliberate investment in long-term capacity,” she noted in the report.
Despite these bright spots, the World Bank warns that significant downside risks continue to weigh on the region’s outlook. Volatility in global energy prices complicates efforts to bring persistent inflation down to central bank targets, forcing monetary policymakers to keep interest rates higher for longer. Elevated real interest rates in turn curb lending to businesses and households, crowding out private investment. High public debt levels and soaring debt servicing costs also eat into government fiscal space, forcing cuts to critical public investment in infrastructure and social services. Compounding these economic risks, the El Niño climate pattern threatens to disrupt agricultural output and hydropower generation, pushing up food and energy prices and exacerbating inflationary pressures.
Beyond near-term macroeconomic risks, the report devotes extensive analysis to the transformative potential of artificial intelligence (AI) for the region, while warning that a critical skills gap threatens to leave Latin America and the Caribbean behind in the global AI race. The technology has the power to drive significant productivity gains across every sector of the regional economy, but widespread adoption remains held back by structural barriers, not just cost or access issues.
Currently, just 17% of working-age adults in the region use generative AI in their work, roughly half the adoption rate recorded in the United States and Canada. Contrary to common assumptions, cost and access to technology are not the biggest bottlenecks. The primary barriers are a lack of managerial expertise to guide AI integration, gaps in core digital skills among the existing workforce, and limited capacity among firms to restructure internal work processes around new AI tools.
The report also breaks down AI’s uneven impact on regional labor markets. Around 8% of regional workers hold high-skill, knowledge-intensive roles that stand to benefit significantly from AI augmentation. By contrast, roughly 10% of workers hold routine cognitive jobs that face high risk of automation. Over the longer term, as automation technology becomes cheaper, even manual labor will face growing disruption: one quarter of all regional workers currently perform routine manual work that could be automated in the coming decades.
To address these challenges and seize AI’s opportunities, the World Bank is urging regional governments to prioritize investment in short-term technical and vocational training programs, upgrade digital public infrastructure, and strengthen the technological innovation capacity of domestic firms. The report also notes that low-cost, locally tailored AI applications already offer high impact opportunities across key sectors including education, telemedicine, public service delivery, small and medium enterprise development, and agricultural productivity, providing a accessible starting point for countries at every income level to build their AI ecosystems.