IMF and World Bank Warn of Iran War Impact on Latin America

Washington: The International Monetary Fund and World Bank presented in April 2026 their assessments of the economic outlook for Latin America and the Caribbean, in the context of the military escalation between the US and Iran that is shaking global energy markets. Although the IMF did not make major revisions to its regional growth projections, it warned about transmission risks through commodity prices, inflation expectations, and risk-averse sentiment in international financial markets.

"After withstanding higher trade barriers and elevated uncertainty last year, global activity now faces a major test from the outbreak of war in the Middle East," the IMF stated in its April 2026 World Economic Outlook. The two largest economies in the region, Brazil and Mexico, are constrained by "tight domestic financial conditions, limited fiscal space, and trade policy uncertainty," according to the World Bank.

Pockets of Dynamism in Smaller Economies

The World Bank report highlighted that "pockets of dynamism persist among smaller Latin American and Caribbean economies." Central American countries are integrating into regional supply chains. Argentina enjoys improved financial conditions derived from fiscal stabilization and Milei's reforms. Paraguay experiences strong agricultural exports and a stable macroeconomic framework, making it one of the region's fastest-growing economies.

Inflationary Pressure and Interest Rates

JPMorgan's market analyst noted that countries that in 2025 projected cutting interest rates (Brazil, Mexico, Chile) have significantly revised their monetary policy expectations given the inflationary impact of the Iran conflict. Only Brazil maintains forecasts for some rate cuts, though smaller than before. Oil prices surpassed $116 per barrel in March 2026, with Citi and Barclays analysts estimating an additional impact of 0.8 to 0.9 percentage points on annual inflation in the region's countries.