LatAm Poised for Take-Off

A new Must C report from Citi Research, put together by a team led by Head of Latin America Economics Ernesto Revilla, explores the favorable environment for Latin America, with both external and domestic conditions supporting a potential acceleration in growth. We look at the possibilities offered by what we see as a significant opportunity, as well as exploring what we think is needed for the region to achieve lasting success.

Latin America’s potential acceleration in growth depends on one of the most favorable environments it has seen in years. The global economy has remained resilient despite recent shocks, while a weaker U.S. dollar and firm commodity prices have provided important tailwinds. The region is also benefiting from shifting trade patterns, gaining import market share from both the U.S. and China. At the same time, stronger macroeconomic management, improving policy frameworks, and a more business-friendly political backdrop have strengthened the case for investment.

These are the best conditions seen in decades for Latin America to achieve a higher rate of growth. The last sustained acceleration in growth occurred between 2003 and 2008, when a weak dollar combined with strong commodity prices created a favorable backdrop. Those conditions are present again today.

Yet Latin America's lack of convergence toward higher income levels remains striking. Convergence refers to emerging markets’ growth rates catching up with those of developed economies, and Latin America has made little progress on that front over the past 120 years. In 1990, the region's per capita gross domestic product was 28% that of the U.S.; in 2024, it was 26.4%. Meanwhile, other regions, particularly Emerging Asia, have achieved significant growth and convergence.

So what do Latin America's strongest growth periods have in common? Conventional wisdom points to strong commodity prices, political stability, and pragmatic governments, all of which the region largely enjoys today. But the region’s history includes periods of strong growth without especially strong commodity prices, and others without strong investment.

What high-growth periods do have in common is a weak U.S. dollar. A weaker dollar creates easier financial conditions for emerging markets: capital flows increase in search of stronger currencies and returns, debt repayment becomes cheaper, and commodity prices rise. The current weaker-dollar environment has benefited Latin America and is likely to remain in place over the medium term.

The region is also enjoying other tailwinds. Commodity prices and terms of trade are at their strongest since the 2000s supercycle. Latin America has benefited from shifts in global trade, thanks to its distance from geopolitical conflicts as well as its abundant reserves of high-demand minerals and commodities. It’s also been well positioned to benefit from nearshoring. Meanwhile, macroeconomic management has matured, as demonstrated by the region's success in tackling post-pandemic inflation, and a more business-friendly political cycle has added support.

But despite these tailwinds, growth remains stuck near 2%, below both potential and the level needed for convergence. The opportunity is real, but success isn’t guaranteed. 

Favorable conditions don’t last forever, and some are beyond the region's control. Still, it’s hard to find another period in modern Latin American history when so many positive factors have aligned to support faster growth and convergence. The stakes are high for the region's 660 million people, investors, political stability, and future generations.