OECD’s Formula for Latin America’s Stagnation: Reform and Steady Growth

Is it time for Latin America to emerge from stagnation? In its latest economic forecast for the region, the Organization for Economic Cooperation and Development (OECD) rules out a sharp jump in growth in Latin America and the Caribbean in the short term. In fact, its forecasts point to a moderate expansion of economic activity, in line with the pace of recent years, at a time when the region has yet to resolve its main structural problems.

The OECD’s diagnosis for the region is clear: without reforms, growth potential will remain limited. Among the main weaknesses, the organization identifies low productivity, one of the great historical burdens of Latin American economies.

In turn, the labor market, marked by high informality, affects more than half of the jobs in several countries in the region. In addition, there is a scarce presence of medium and high value-added sectors, which reduces the ability to compete in more sophisticated global value chains.

In this context, the OECD insists that Latin America’s future growth will depend less on the cyclical impulse of consumption or raw materials and more on a transformation of the production model. The organization urges the strengthening of industrial development policies, investment in innovation, education and human capital training, areas in which the region is still clearly behind developed economies.

The OECD has revised downward its growth forecasts for Mexico and Argentina

The OECD’s roadmap for Latin America’s economic development includes another key point: institutional strengthening. Improving the quality of public administrations, reinforcing legal security and modernizing tax systems are necessary conditions for attracting long-term investment and generating more predictable environments for business activity.

Sustainability also appears to be one of the major levers for growth. For the OECD, the challenge is no longer just to exploit resources, but to do so under environmental, social and governance standards that generate long-term value and avoid a new dependence on extractive activities.

At the same time, the organization focuses on the need to mobilize both public and private financing. The consolidation of capital markets, the development of sustainable financing instruments and greater regional coordination appear as key elements to channel resources towards infrastructure, digitalization and productive fabric.

The region will have to address structural problems such as informality, financing and low productivity

Analyzing each country in the region, the latest OECD forecasts have been favorable for Brazil. The entity improved growth forecasts for the South American giant, although the best performing economies this year will be Costa Rica and Argentina, although for the latter, forecasts have been revised downwards.

The OECD also cut Mexico’s growth forecast for 2026 and 2027, while for this year, the Aztec economy will expand by only 0.7%. For Colombia, the entity anticipates a growth of 2.8% this year and 2.7% for 2027, improving past forecasts.

The expectation for the Colombian economy is that inflation will continue to decelerate, although remaining above 3%, until 2027, with a restrictive monetary policy.