The LatAm Outlook - trade and economy in 2025

Economic outlook

Fewer cuts by the US Federal Reserve, in the context of heightened inflationary risks, weaker exchange rates, and idiosyncratic factors mean more gradual adjustments to easing cycles through 2025 in most economies of the region are likely. In Mexico, the Central Bank is forecast to cut 25 bps to 10.0% in the final meeting this year, with a 2025 year-end policy rate of 9%. In Colombia, the terminal rate of the easing cycle is 6.5%, with potential larger cuts due to board turnover. Chile’s terminal rate is 4.5%, reflecting higher inflationary pressures. Peru’s cycle is expected to end earlier in 2025 at 4.5%, with inflation expectations still above the 2% target. Real ex ante rates are projected to remain above neutral in Mexico and Colombia, and close to neutral in Chile and Peru.

Chile and Peru’s 2024 GDP growth is down to 2.2% and 2.9%, respectively, with 2025 also looking less promising due to lower carryover, tighter financial conditions, less growth in China, and lower copper prices. Mexico’s 2025 growth is forecast at 1.0% due to higher rates and a deteriorating investment outlook. Colombia’s 2024 GDP growth is forecast at 2.0%, with 2025 at 2.4%.

In Argentina, despite high inflation and stabilisation program effects, activity rebounded in 3Q24. The economy is expected to contract by 3.5% in 2024, followed by a 4.0% expansion in 2025. Fiscal consolidation continues, with confidence in the government rebounding further in November. Changes in the US could facilitate additional financing and investment opportunities. The next few months are key for consolidating disinflation, economic recovery, and ending the crawling peg policy.

In Brazil, the primary budget deficit is forecast at -0.4% of GDP in 2024 and -0.7% in 2025. Fiscal and external uncertainties and a stronger USD outlook mean FX projections are BRL 5.70 per USD in 2024 and 2025. GDP growth is projected at 3.2% for 2024 and 1.8% for 2025. The economy should decelerate in 2H24 and 2025 due to higher interest rates, reduced fiscal stimulus, and lower global growth forecasts. Inflation estimates are 4.8% for 2024 and 5.0% for 2025, with the monetary policy rate expected to reach 13.50% pa in 2025 and remain at that level until the end of the year.

UK trade with Latin America

The UK’s commercial ties to Latin America are shaping up positively. Political and policy stability in the major markets of Brazil and Mexico is anticipated, whilst the economic reforms in Argentina are helping to open another major market in the region to international business. This stability is further enhanced when considered as part of the wider the global context, as Latin America will likely benefit from being a ‘bystander’ to the growing uncertainty and instability in many other regions.

UK trade with the region is already good and growing, and the expectation is for this to continue in 2025. The UK has a demonstrable track record of supporting large-scale infrastructure and energy projects in the region, and these conditions should create further opportunities in these two areas of UK expertise. Data from the Office for National Statistics (ONS) indicate that UK exports to the region are up 36% in the last 5 years, exports to Brazil are at record levels, and, Foreign Direct Investment (FDI) from the Latin America and Caribbean (LATAC) region in the UK was at least £125bn in 2022.

Fintech and agri-tech innovation also represent emerging opportunities for the UK in the region. Many Latin American economies are, for example, looking to adopt Open Banking frameworks modelled on the UK, which could be a driving force for innovation in banking industries across the region; and as a major agricultural producer and exporter, Latin America is clearly a key market for agricultural technologies, particularly those linked to climate change adaptation and resilience.

The hosting of the Pan-American Games in Peru (2027), as well as football World Cup matches in Mexico (2026), and Argentina, Uruguay and Paraguay (one game each in 2030), also presents commercial opportunities for the UK - a sports economy powerhouse - particularly in respect to hosting large scale events.

After a long journey, the UK will also see the CPTPP enter into force in December 2024, which will further deepen and strengthen UK trade with the three Latin American economies - - Chile, Peru, Mexico - that are already party to the agreement.

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