The Inter-American Development Bank (IDB) warned that economies across Latin America and the Caribbean should adopt more cautious fiscal policies and pursue closer regional cooperation to confront a period of moderating growth, forecasting expansion of 2.1% in 2026.
In its Latin American and Caribbean Macroeconomic Report, the bank put growth for 2025 at 2.2% and projected 2.1% for 2026, a pace that the report described as being near the region's long-run average. "Yet resilience does not imply immunity," the IDB said, adding that "growth remains modest."
The report cautioned that higher global interest rates and greater levels of accumulated debt are driving up debt-service obligations, constraining public budgets and reducing the scope for policy responses to future shocks. The IDB reports that average public debt currently stands at 59% of GDP, with projected ranges between 57% and 66% of GDP by 2028 under its baseline and stress-case scenarios.
The forecasts included in the report were completed before U.S. and Israeli strikes on Iran began at the weekend, an event the IDB noted had unsettled global markets.
Institutional quality and digital tools
The bank underscored the role of stronger institutions in supporting longer-term growth. It suggested that governments could use digital technologies to strengthen tax administration, improve the efficiency of public spending and modernize payment systems. These measures, the IDB said, would help governments rebuild fiscal buffers and better position economies to benefit from technological shifts and natural resource endowments.
The IDB emphasized that turning opportunities in areas like artificial intelligence and critical minerals into durable development gains will depend heavily on institutional capacity. The bank warned that resource wealth by itself does not guarantee prosperity, arguing that institutional quality - rather than geology - has historically determined whether resource abundance supports long-run development or exacerbates boom-and-bust dynamics.
Labor market, productivity and AI
While several countries in the region are seeing unemployment close to historic lows and inflation largely back within targets, productivity remains a persistent constraint on income growth. The report noted that the working-age population is expanding more slowly than in previous decades, narrowing the prospects for continued labor-driven growth: "The scope for continued labor-driven growth is narrowing," it said.
Hiring patterns are showing new characteristics. The IDB cited data indicating job postings that mention artificial intelligence climbed sharply in 2025, reaching a record 7% of all vacancies in June. Chief economist Laura Alfaro Maykall commented that the available evidence suggested AI-related hiring had not displaced other employment, while cautioning that the relationship observed in the data represents correlation rather than proof of causation.
Critical minerals and their limits
The IDB reported that the spread of AI, the rise in electrification and the broader global energy transition are increasing demand for minerals such as copper, lithium and rare earth elements, where the region holds meaningful reserves. The bank's analysis indicates that global demand for lithium alone could increase between 470% and 800% by 2050, depending on climate policy scenarios.
Despite the strategic importance of these materials for clean energy and digital systems, the IDB cautioned against viewing mineral endowments as a quick route to development. The report defines critical minerals as those that are economically important but vulnerable to supply disruptions, and notes that global supply chains remain heavily concentrated in refining and processing. The bank highlighted the susceptibility of mineral markets to volatile price swings and boom-and-bust cycles.
Laura Alfaro Maykall argued that deeper regional integration would be necessary for countries aiming to capture value beyond extraction, noting that few economies in the region possess the scale to do so on their own. She also pointed to the potential productivity gains from stronger competition across sectors, including services such as banking and logistics.
The IDB concluded that preserving macroeconomic resilience is essential but insufficient on its own. The institution urged countries to rebuild fiscal buffers, strengthen public institutions and implement policies that convert technological change and natural resource advantages into sustained productivity improvements.