Latin America in the new context of geopolitical and trade tensions
Geopolitical and trade tensions pose the greatest risk to Latin America’s economy, driven by uncertainty over the new U.S. Administration’s policies on trade, migration, and regulation, as well as potential global reactions. These factors could disrupt trade, capital flows, currency values, and financial stability, impacting economic growth and inflation.
Economic activity in the region is expected to slow in 2025, with inflation generally trending downward despite country-specific risks. Monetary policy responses vary: Brazil has raised rates, Chile, Colombia, and Peru have paused, and Mexico has cut rates. The region’s financial markets anticipate limited further rate cuts, with potential hikes in Brazil, influenced by U.S. economic policies.
Depreciation pressures from global risks and U.S. monetary policy have been mitigated by domestic policies. Portfolio capital inflows persist despite lower carry trade returns.
The U.S. regulatory agenda on energy and the environment is crucial for Latin America due to its dependence on commodity exports. A Chinese slowdown could lower commodity prices, while a stronger U.S. dollar could push them up. In the medium term, weaker global energy transition efforts may reduce demand for key exports like copper, lithium, and zinc. The region’s oil, gas, and coal exports may also be impacted by U.S. energy policy, though the price effects remain uncertain. For now, Latin American companies in these sectors are seeing stock price gains.
