By FocusEconomics
CENAM to outperform Latin America, again: Our Consensus is for Central America and the Caribbean (CENAM)’s economy to expand more quickly than Latin America’s for the 13th time in 14 years in 2025. Private spending and fixed investment are projected to grow more quickly in CENAM, buoyed by lower inflation and interest rates. Moreover, unlike major economies in Latin America, CENAM will likely avoid aggressive US tariff hikes as governments make large concessions on migration to Trump. Despite slowing from last year, the US economy will remain a critical lifeline, fueling remittances, investment and tourist arrivals in CENAM.
GDP growth to trail other emerging markets: That said, CENAM will lag most emerging markets in 2025 as structural headwinds persist, including rampant crime, mass emigration, weak infrastructure, high labour-market informality and climate shocks. Additionally, CENAM’s exposure to the US economy will be another drag: Tight global financial conditions and elevated US interest rates will limit capital inflows into the region, push up borrowing costs and curb private investment growth in some economies.
Regional dynamics to carry over into 2025: The Dominican Republic will remain CENAM’s best performer and grow by almost 5 percent this year, supported by market-friendly reforms and supportive monetary policy. In contrast, an acute energy crisis in Cuba, escalating gang violence and political chaos in Haiti, and dwindling federal funds inflows from the US in Puerto Rico will anchor these economies to the bottom of the regional ranking.
Elsewhere in the region, Costa Rica is set to grow comfortably above CENAM’s average, boosted by a pre-election spending spree, and Panama will regain steam thanks to major infrastructure projects, recovering activity in the Panama Canal after last year’s drought and the fading effect of the closure of the copper mine Cobre Panamá in 2023. Guatemala should also grow briskly thanks to a looser fiscal stance and a sound business climate encouraging investment.
The Trump card: Hardline control of migration under the new U.S. administration could disrupt remittances inflows to CENAM later in the year, and therefore squeeze household budgets. Moreover, reabsorbing repatriated workers in CENAM countries would increase demands on the social welfare system and potentially hit public finances. Meanwhile, Trump’s administration will likely take a selective approach with regard to authoritarian governments in CENAM: While Nicaragua has been threatened with further sanctions, El Salvador will likely be spared due to its cooperation with the U.S. on deportations.
Haiti’s collapse: A recent international mission has failed to halt Haiti’s worsening security and humanitarian crisis, which threatens to destabilize the broader Caribbean—driving migration, disrupting trade flows and raising the risk of gang violence spilling across borders. Prolonged unrest could also further erode investor sentiment and deter tourism.
Trade frictions: The Dominican Republic-Central America Free Trade Agreement (DR-CAFTA)—a trade treaty between the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the US—could come under pressure this year. While some analysts argue that the treaty will not be renegotiated as the US has a wide trade surplus with the bloc, trade could still suffer from sweeping US tariff hikes on raw materials and intermediate goods, as well as from weaker near-shoring demand from the US.
Insight from our analysts:
On the risks for regional heavyweight Costa Rica, Oxford Economics’ Mauricio Monge, said:
“Risks to growth remain tilted to the downside. On the external side, the trade war between the US and China, and other regions such as the European Union, will affect the external demand for Costa Rica’s exports through lower global growth. On the domestic side, insecurity levels are still hitting new records this year, and their effects on tourism inflows and investment are becoming evident. Additionally, we see potential for heightened social discontent and the risk of social riots during next year’s elections.”
On the diverging treatment of government across the political spectrum, EIU analysts, said:
“We expect the Trump administration to take a harder line on Latin America’s leftist authoritarian regimes. The administration has already threatened to oust Nicaragua from the Dominican Republic-Central America Free-Trade Agreement (DR-CAFTA), although such an outcome is not part of our baseline forecast, given the economic instability and outward migration (potentially to the US) that this would cause. […] Meanwhile, Trump is turning a blind eye to the drift into authoritarianism of El Salvador’s right-wing government, prioritising instead bilateral agreements on migration control.”
Our latest analysis
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