Advantage Latin America
The conditions for Latin America to achieve a higher rate of growth are the best they have been in decades. The last time the region achieved a sustained acceleration in growth was from 2003-2008. Back then, a weak U.S. dollar and strong commodity prices combined to form the backdrop for growth. Those conditions, and more, are present again today. Latin America’s GDP per capita has not been increasing towards the level of U.S. per capita GDP as simple economic theory would predict given the higher potential for growth of a less developed economy. In 1990, LatAm’s GDP per capita as a share of the U.S. was 28%. In 2025, it was 26.4%. That is, the relative standard of living of the average Latin American vs the average American has not only not been stable but has backtracked a little after 34 years. The contrast with EM Asia and EM Europe and Central Asia is stark, and its trend is closer to that of Sub-Saharan Africa.
The stakes for 660 million people living in the region, for investors leveraged to the region’s future, and for future generations are high. It also underpins the political stability of the western hemisphere. To see why LatAm is now at the brink of possibilities, it is important to understand the combination of factors that were present in previous high growth episodes. Any growth acceleration needs ‘stars to be aligned’ for growth to explode. The current environment provides Latin America with a unique opportunity as the pieces are coming into place after a long while. For LatAm, high growth is generally thought to require strong commodity prices, domestic political stability or at least policy continuity, and pragmatic governments. These characteristics are for many countries present again.
One can divide LatAm’s growth story into three broad periods since World War II: (1) The state-led industrialization of 1950-1980, (2) the Washington Consensus era of 1990-1997, and (3) the commodities super-cycle of 2003-2013. Significant growth happened in the first and third of these periods. However, it is not easy to find common factors. Terms of trade were mediocre in 1950 to 1973, although the increase in the oil price from 1973 to 1980 split the region’s fortunes between producers and consumers. Investment was strong in the industrialization era, but not particularly so in the commodities boom. What was happening to the USD seemed to have a significant impact on Latin American evolution. Governments did not advance the agenda of microeconomic and structural reform that made strides in the previous decade. On the positive side, the good macroeconomic evolution of the decade together with the stronger fundamentals built since the 1990s reform meant that the high-growth episode ended with a wimp. In a nutshell, if LatAm is able to capitalize on current conditions, it will need to balance consumption and saving, do not forget microeconomic modernizing reforms, and prioritize productivity enhancing investment for the future. In other words, there are positive demand factors coming Latin America’s way, but the
region need to invest to improve its supply side to accommodate the tailwinds and to make it more permanent.
Quite a lot is about the USD. In LatAm’s history, the main factor that explains an important part of the region’s development is the behavior of the broad U.S. dollar. In a sense, the USD cycle is the master variable for LatAm’s fortunes. The USD is the mirror image of GDP per capita as a share of the U.S. Rarely does one find such a clear relationship in economics, and particularly in the economics of growth. The single sustained convergence that LatAm has achieved in the last 35 years (+4pp, from 26% to 30% of U.S. income in 2002-2011) happened during the weak-dollar decade. In the 2000s, the U.S. was running large trade deficits, interest rates were low after the dot com bust and the global financial crisis, and rapid growth in China and EMs shifted capital investments away from the U.S. and created strong demand for commodities. gence back. If a weak USD decade is starting, LatAm needs to seize the opportunity.
A weak USD is associated with stronger Latin American growth as it implies easier financial conditions for emerging markets. Capital flows increase as investors search for stronger currencies and higher returns, debt repayment is cheaper (as EMs have an important share of their debt in dollars), and commodity prices are higher. Furthermore, there is less imported inflation as the local currency is stronger allowing local central banks to ease rates, and foreign technology and capital goods become cheaper in local currency terms. It is therefore not surprising that eras of weak USD benefit EMs and that they are able to accelerate their catch up to advanced economies at these times. From January 2025 to August 2026, the USD weakened close to 9%. The big question for Latin America is how long this weaker USD era will last.
High commodity prices are usually the counterpart of a weak USD. The weak USD and the strong commodities cycle is usually the same mechanism and is part of why weak-USD cycles help Latin America. As commodities are primarily priced in USD, a weak USD makes them more affordable for international buyers, increasing their demand. Increased global liquidity and Chinese demand in the 2000s gave us this combination. Note that a supply side shock such as an energy-driven shock can break this correlation: significant Middle East tension can cause both dollar strength and high oil prices, with a more heterogenous impact on LatAm depending on the producer/consumer split in the region and its macro characteristics.
Macro institutional maturity sets the stage for growth. One of the favorable factors in Latin America that enabled the 2000s super-cycle to generate strong growth was a more modern macro framework compared to the second half of the 20th century: central banks doing monetary policy through inflation targeting and flexible FX regimes, strong reserve accumulation, fiscal rules, and good financial regulation. That macro framework has persisted, matured, and has shown its successes. The post-pandemic disinflation is largely done and revealed sophisticated central banks in the region. Currently, LatAm’s real rates are among the world’s highest making it attractive for fixed income investors, which means high carry now but significant room to cut, which would add fuel to growth. The carry levels in real terms (Brazil ~10%, Colombia 6%, Mexico 2.5%, Peru 2%) attract bond and FX inflows, which well-managed could be turned into productive capital formation, but also leave space for monetary easing.
Why can this era be better than the commodity supercycle? LatAm can be at the doorstep of another strong decade as the favorable conditions of the 2000s repeat, but with additional tailwinds and lessons learned. The weak USD and strong commodity prices set the stage. However, macroeconomic management is further consolidated as evidenced by the success that central banks in LatAm had fighting the post-pandemic inflation surge. This time the region has shifted to the right with governments that are more explicitly business friendly and that seek microeconomic reform.
Latin America can potentially enjoy a boom decade if the opportunity is seized. This, however, is not secured, as historical constraints remain in place, and policy challenges remain, in different degrees and characteristics, depending on the country. Region-wide averages and trends conceal idiosyncratic stories, strengths and challenges. There have been periods where individual countries have been converging while the region was not.
Commodity exporters, Mexico and CCA benefit from obvious trends discussed above. Even if Brazil has significant fiscal challenges, it would be a high-beta expression of our thesis: cheap FX, and biggest real-rate carry, so maximally geared to the USD turn. Chile and Peru top the composite on commodities plus fiscal strength, but each has soft spots: in Chile the easing dividend is spent, in Peru’s chronic political instability prevents stronger investor sentiment, which hopefully changes under the current administration and the new bicameral Congress. Argentina is in the right reform track, but politics in 2027 can turn binary eventually. Colombia’s weaker macro fundamentals are now a drag that need to be attended to.
Latin America is in the right place, at the right time. But it is not yet accelerating. Growth remains resilient but low, stuck around the 2% trend: below potential and what is needed to escape the non-convergence trap. The bull case does not rest on current growth, but on valuation, level of currencies, carry, terms of trade, policy credibility, and the serendipitous combination of favorable factors not seen in more than a decade. Opportunity is there but needs to be captured. The region enjoys three advantages that few other regions can simultaneously claim: (1) it remains firmly embedded within the U.S. sphere of economic influence, benefiting from the resilience of the most dynamic economy in the world; (2) it preserves strong commercial ties with China; and (3) it exports a basket of goods whose long-term outlook remains favorable.