2026: A key year for the economy and politics in Latin America

The economic forecasts for the coming year are stable and slightly positive. On a political level, the continent is facing a change of direction due to several elections. In addition, geopolitics is likely to exert an even stronger influence.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

The economic outlook for Latin America is stable, albeit at a low level. After a weak second half of 2025, growth is expected to pick up again in the first half of 2026, but will remain below potential. The region as a whole is expected to grow by 1.7% next year (2025: 2.2%). However, no country is expected to slip into recession.

Argentina is a positive outlier. Latin America’s third-largest economy is performing best in the forecasts for 2026. Investment bank JP Morgan expects growth of 3.4%. Economists attribute this to the expected recovery following the clear election victory of President Javier Milei’s party in the midterm elections.

The forecasts for Colombia (2.8%), Chile (2.3%), and Peru (3.1%) also look better than average. Colombia’s economy continues to benefit from politically stimulated consumption. In the mining country of Peru, high prices for ores and raw materials are providing additional momentum. Chile could benefit from stable investment under a likely center-right government in 2026.

For Brazil and Mexico, which rank first and second among Latin America’s largest economies, the expected growth figures are weaker. Despite expansionary fiscal policy, Brazil is growing well below its potential. The Mexican economy is stagnating this year. Due to ongoing uncertainties about the USMCA free trade zone, growth is likely to remain limited.

Politically, 2026 will be a key year for the region

Elections are coming up in almost all major economies, with the exceptions of Mexico and Argentina. In March, the new government will take office in Chile. Elections will be held in Peru in April and May, in Colombia voters will go to the polls for the first time at the end of June, and in Brazil at the beginning of October. The election results are considered indicative of the region’s economic policy course.

It is not certain whether the recent trend toward the center-right, as observed in Argentina, Ecuador, and Bolivia, will continue. In Brazil and Colombia, left-wing candidates are currently in the lead.

There is a general tendency for incumbents or candidates close to them to be voted out of office. People are dissatisfied with the politicians currently in power. This is shaping election campaigns through greater polarization. It also increases the likelihood of political change or the rise of political outsiders.

The new US strategy under US President Donald Trump is having a strong influence. In his second term, the US is pursuing a much more active course toward Latin America. It is difficult to predict how this course will play out in the medium term. For example, Argentina’s President Milei is actively supported by the White House. Under Trump, however, relations with Brazil and Colombia have deteriorated significantly at times. Trump is literally at war with Venezuela.

China’s reaction to the North American offensive in Latin America is also difficult to assess. So far, China has been publicly cautious in its criticism of Trump’s course in the region. In the meantime, however, Trump is gaining support in several Latin American countries – especially in the growing political spectrum to the right of center.

The six most important economies in Latin America in detail:

Brazil

In Brazil, the general elections scheduled for October 2026 are already dominating everyday political life. They are creating considerable political and economic uncertainty, as it is completely unclear who will govern the country from the beginning of 2027.

The government will try to increase spending to enable the election victory of President Luiz Inácio Lula da Silva, who is expected to run again. However, this fiscal stimulus will be slowed down by high interest rates. On the positive side, inflation continues to fall. Pressure for structural reforms is increasing, but this will not be an issue in the election campaign.

Mexico

The economy is being weighed down by the revision of the USMCA agreement, which is scheduled for July 2026. The government and the central bank are pursuing restrictive fiscal and monetary policies. This is preventing rating agencies from raising the country’s risk rating.

Positive momentum is coming from US demand for high-tech goods and relatively robust consumption. Record levels of foreign investment are flowing into Mexico again this year. Despite uncertainty about how Trump will negotiate with Mexico, US companies are continuing to expand their operations in the country.

Argentina

Following Milei’s clear victory in the midterm elections, important tax and labor market reforms have become more likely politically. This is especially true given that the US intends to continue supporting the government. The government continues to strictly control public spending. JP Morgan expects annual inflation of 17 percent by the end of next year.

The continuity of the government’s course will depend on whether the purchasing power of the population continues to increase beyond inflation gains. Argentina urgently needs jobs in the private sector to combat high unemployment and get the economy back on track.

Chile

The presidential election (José Antonio Kast versus Jeannette Jara) will determine the country’s future economic policy course in an environment of low growth. Growth of 2.3% is expected for 2026, which is far too little for Chile. In addition, the issue of lack of security dominates public debate. The business community expects the next government to create a business-friendly environment.

Colombia

The 2026 elections – Congress will be elected in March, the president in May/June – are taking place in a climate of uncertainty, violence, and tense relations with the US. The government has continuously increased public spending, with the result that Colombia now has the highest budget deficit in Latin America after Brazil. Private investors are holding back. The security situation in the country has deteriorated.

Peru

Despite chronic government instability – seven presidents in eight years – the macroeconomy remains robust: growth is at 3%, inflation is low, and prices for copper, gold, and silver are high. The 2026 elections theoretically offer an opportunity for political stabilization. However, the likelihood of this is low. The party system remains fragmented, with no clear favorite emerging.