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Investing.com -- Capital Economics warned that while Mexico remains the most vulnerable to U.S. import tariffs, the broader Latin American region faces growth challenges from tight fiscal policies and worsening terms of trade over the next few years.
Mexico’s economy, heavily reliant on U.S. demand, is projected to grow just above zero if subjected to a 10% U.S. import tariff, as assumed in Capital Economics’ forecasts.
However, the note highlighted the risk of larger tariffs, particularly if there are no exemptions for the auto sector, which could push Mexico into recession.
Until there’s more clarity over the future of Mexico’s trading relationship with the U.S., hopes of near-shoring benefits will remain dampened, the note said.
Additionally, Central American economies reliant on remittances, which account for up to 20% of GDP, could face significant strain from Trump’s proposed deportation plans.
Elsewhere, Brazil’s economy is expected to stay soft, with growth below expectations over the next few years.
The central bank’s tightening cycle may lead to more rate cuts than anticipated in 2026, but concerns over fiscal discipline could trigger fresh sovereign debt fears.
Colombia’s economy faces elevated public finance risks as the government struggles to meet fiscal targets.
Tight policy and declining copper prices are expected to weigh on Chile’s growth, while inflation is likely to remain above target, delaying the central bank’s easing cycle.
Argentina has shown progress toward macro stability under President Milei, but Capital Economics warned that concerns over the overvalued peso and potential challenges with large dollar bond repayments could reignite fiscal fears.
Overall, the firm projected average regional growth of around 2% over the next few years, with GDP growth forecasts for major Latin American economies generally trailing consensus estimates.
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