By Rodrigo Campos
NEW YORK, March 3 (Reuters) - Latin American and Caribbean countries should push for more fiscal prudence and regional integration to tackle slowing growth, the Inter-American Development Bank said on Tuesday, predicting economic expansion of 2.1% in 2026.
In its Latin American and Caribbean Macroeconomic Report, the IDB estimated economic growth of 2.2% in 2025 and forecast 2.1% for 2026, close to the region’s long-run average.
"Yet resilience does not imply immunity," the report
said. "Growth remains modest."
Higher global interest rates and accumulated debt are increasing debt-service costs, putting pressure on public finances and narrowing room to respond to future shocks, the report said.
Average public debt stands at 59% of GDP, with projections ranging between 57% and 66% by 2028 under baseline and stress scenarios. The forecasts were compiled before U.S. and Israeli strikes on Iran began at the weekend, shaking global markets.
STRONGER INSTITUTIONS KEY TO LONGER-TERM GROWTH
Digital tools could help governments improve tax collection, manage spending more efficiently and modernize payment systems, the IDB said.
The bank said stronger institutions would be key to longer-term growth, particularly if the region is to turn opportunities from artificial intelligence and critical minerals into sustained gains.
While unemployment is near historic lows in several countries and inflation has largely returned to target, weak productivity continues to limit income gains, especially as the working-age population grows more slowly than in past decades.
“The scope for continued labor-driven growth is narrowing,” the report said.
Hiring patterns are shifting. Job postings mentioning artificial intelligence rose sharply in 2025, reaching a historic high of 7% of all vacancies in June according to the IDB.
Chief economist Laura Alfaro Maykall said the data so far suggested AI-related hiring was not crowding out other jobs, though she cautioned the evidence showed correlation rather than cause and effect.
AI STOKES DEMAND FOR MINERALS
At the same time, the spread of AI and electrification, alongside the global energy transition, is increasing demand for minerals such as copper, lithium and rare earths, where the region holds significant reserves.
Global demand for lithium alone could rise between 470% and 800% by 2050, depending on climate policy scenarios, the report said.
But the IDB cautioned that minerals are not a shortcut to prosperity. It defines critical minerals as materials that are both economically important and vulnerable to supply disruptions, and notes that supply remains heavily concentrated globally, particularly in refining and processing.
Despite their strategic role in clean energy and digital systems, these minerals remain prone to sharp price swings and boom-and-bust cycles.
“Institutional quality, rather than geology, have proved decisive in whether resource abundance leads to long-run development and resilience or reinforces boom and bust cycles,” the report said.
Alfaro said deeper regional integration would be important if countries wanted to capture more value beyond extraction, noting that few economies in the region had sufficient scale on their own. She added that stronger competition — including in services such as banking and logistics — would also help lift productivity.
“Resilience must be preserved, but resilience alone is not enough,” she said. “Durable growth will depend on rebuilding buffers, strengthening institutions, and adopting policies that convert technological change and resource endowments into sustained productivity gains.”
(Reporting by Rodrigo Campos in New York; Editing by Karin Strohecker and Alison Williams)
