Economic growth ‘to weaken’ this year

The private consumption and external demand which stimulated economic growth in Barbados and the region in recent times, will weaken this year, causing Latin America and the Caribbean economies to lose some steam amid rising global uncertainty.

That is the prediction of the Economic Commission for Latin America and the Caribbean (ECLAC).

The United Nations agency is recommending that countries in the region strengthen their fiscal policy
to make public purses more sustainability, something it deemed necessary “as high debt levels limit governments’ ability to respond to adverse shocks or expand public investment spending”.

ECLAC gave the advice in the recent presentation of its flagship Preliminary Overview of the Economies of Latin America and the Caribbean 2025 report, which was released by its executive secretary, José Manuel Salazar-Xirinachs in Santiago, Chile.

The organisation projected gross domestic product expansion of 2.9 per cent for Barbados in 2025 but predicted that this would fall to 2.1 per cent this year.

It said overall that growth “is expected to remain weak in Latin America and the Caribbean in 2026, amid still-uncertain global conditions”.

“The Caribbean is expected to grow by 5.5 per cent in 2025 and 8.2 per cent in 2026, underpinned by significant growth in oil activity in Guyana, and aided by the normalisation of tourism and an improved performance in the construction sector,” ECLAC reported.

“However, this sub-region is highly exposed to natural disasters, which constrains its economies’ capacity for growth.”

When Guyana’s forecast is excluded, “the Caribbean . . . is forecast to grow by 1.8 per cent in 2026, at a slightly slower pace compared with 2025”.

“Economic expansion is subject to tourism and construction trends in the subregion, which is highly vulnerable given its dependence on imported energy, high transport costs and exposure to natural disasters,” ECLAC added.

Salazar-Xirinachs said that if the region wanted to increase economic growth, it needed more ambitious productive development policies.

This should be combined “macroeconomic policies that would mobilise more resources for growth, innovation, economic diversification, productive transformation and the creation of quality jobs”.

“Only in this way will the region be able to bolster its resilience and move towards more productive, inclusive and sustainable development,” he said. 

ECLAC’s overall anaylsis was that “for 2026, the economic outlook for Latin America and the Caribbean points to continued slow growth in the region, characterised by moderate growth rates, an uncertain international environment and persistent internal constraints on efforts to foster investment, strengthen productivity and expand formal employment”.

It said Latin America and the Caribbean’s GDP “is projected at 2.4 per cent in 2025 and 2.3 per cent in 2026, reflecting four consecutive years of rates close to 2.3 per cent and confirming that Latin America and the Caribbean is caught in a trap of low capacity for growth”.

A major reason for this is the weakening economic influence from private consumption and external demand.

ECLAC said on this issue that “on the demand side, private consumption will continue to be the main driver of growth, albeit less so, with its contribution falling from two percentage points in 2024 to 1.6 percentage points in 2025 and 1.4 percentage points in 2026”.

It elaborated, stating: “Public consumption will remain weak and while the contribution of investment is set to increase progressively, this will still be insufficient to change the pattern of low growth.

“Net exports will again have a negative contribution in the 2025-2026 biennium, owing to the slacker momentum of exports and a rebound in imports. Average regional growth for the period 2017 to 2026 is projected at just 1.6 per cent, reflecting a combination of the trend towards slowdown and high cyclical volatility.

“In this regard, the growth of around 2.3 per cent recorded between 2023 and 2026 can be interpreted more as a post-pandemic cyclical rebound than as a change in the long-term growth of the region’s economies.”

These issues are compounded by the outlook that the external environment “is expected to remain uncertain”.

“The global economy is expected to grow at a rate of close to three per cent in 2026, against a backdrop of international trade that has virtually flatlined and is vulnerable to geopolitical and trade tensions,” ECLAC said.

“The economic slowdown in the region’s main trading partners – the United States, the eurozone and China –  will weaken external forces. Furthermore, the prices of some of the region’s export commodities are expected to decline in 2026.

“Notwithstanding this downtrend, some commodity prices, such as base and precious metals, will increase.”

The report also said that the region’s current account will register a moderate deficit in 2026, reaching about 1.5 per cent of GDP.

This would “be largely attributable to net interest payments abroad, which will stand at close to 4.1 per cent of GDP [and] will be offset, in part, by a surplus on the goods balance and by remittances inflows, as well as net capital inflows through the financial account of the balance of payments”.

Slower employment was another challenged ECLAC envisaged this year.

“In 2026, a slowdown in employment growth is expected. This will be accompanied by further slight reductions in informality and historically low unemployment rates,” it said.

“Inflation will converge toward a median of three per cent in 2026, after the sharp correction in 2023 to 2025, on the back of falling international food and energy prices, exchange rate appreciation and prudent monetary policies, although with upside risks related to financial volatility and new external shocks.

Given what it sees as the difficult times, including slower economic growth, in store for Barbados and other Latin America and the Caribbean economies over the next 12 months, the UN entity warned that
the region “faces the dual challenge of managing growing macro financial risks and advancing reforms that drive productive transformation and social policies and increase potential growth”.

Domestically, measures must be taken to strengthen fiscal policy sustainability, the report said that “regional authorities must use all the tools available to reduce their economies’ external vulnerability, which is associated with the dependence on natural resource exports and the market concentration that continue to expose countries to the risks of the deterioration of the terms of trade”.

“Undertaking this complex task will require regional authorities to seek opportunities and mechanisms to enhance coordination among fiscal, monetary, exchange rate and prudential policies, with a view to boosting economic growth,” ECLAC said.

“Also needed are policies to speed up productive transformation and increase the productivity of the region’s economies and improve employment quality.

“In this regard, it is necessary to scale up productive development policies: the challenge for the region is to promote integrated agendas for innovation, digitalisation and productive diversification that will increase productivity.”

The publication said that the region “must also make headway in adopting policies to promote formal production units and employment, improving social protection and workforce training, and implementing instruments to reduce structural gender and intergenerational gaps”.

“Addressing these challenges requires comprehensive policies that combine responsible fiscal management with investment incentives, as well as monetary policies designed to consolidate nominal stability and strengthen domestic resource mobilisation, fostering greater financial intermediation and adequate risk assessment,” it suggested. 

“Such fiscal and monetary measures will help to improve efficiency in resource allocation, foster inflation convergence and advance structural reforms that boost the productivity and transformation capacity
of the region’s economies. In addition, the countries of the region should consider policies aimed at expanding access to new export markets, strengthening trade and production cooperation and promoting greater financial integration and intraregional trade.

“It is also necessary to strengthen economic and social institutional frameworks, improve regional cooperation and enhance policy coordination with a view to mitigating external shocks more effectively,”
ECLAC advised.

The predictions and advice in relation to 2026 came after the agency reported that “economic growth in Latin America and the Caribbean remained subdued in 2025, constrained by weak domestic demand
and an uncertain global environment”.

“External sector results were mixed: some countries recorded higher exports of goods and services, while others were affected by pressure on the terms of trade and greater trade volatility,” it said.

“On the fiscal front, fiscal consolidation measures and debt interest payments limited the scope for more active policies. Labour markets continued to recover, but more slowly. Employment grew moderately, labour participation and unemployment gaps between men and women persisted and informality remained high in most of the countries.”

ECLAC noted that inflation “continued to decline, making it possible to move towards less restrictive monetary policies, although investment remained subdued and productivity showed no signs of picking up”.

“Momentum came mainly from the services sector, while manufacturing and construction lagged behind,” it said.

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