Latin America is in a critical situation, according to a recent report by JP Morgan. Due to protectionism and the current geopolitical situation, economic growth is also being affected. Thus, even with the support of Mercosur, the Pacific Alliance, the Andean Community, and the Central American Integration System, Latin America faces challenges in managing the difficulties associated with intraregional trade and related exports. As The Economist explains, regional integration would have great benefits for certain sectors, but China and the United States make this approach more complicated than it seems. Keep reading to find out all the details.
JP Morgan and the warning about Latin America’s economic outlook
The financial firm JP Morgan has issued a warning that is shaking up Latin America’s economic outlook: regional growth will slow to 1.9% in 2025 due to an increasingly complex environment for trade and investment.
This outlook, outlined in its latest analysis on regional integration, reflects the effects of internal fragmentation, geopolitical tensions, and low participation in global value chains, which limit opportunities for sustained expansion in the region.
Persistent obstacles slow trade and investment growth, according to JP Morgan
Although Latin America has multiple integration schemes—such as Mercosur, the Pacific Alliance, the Andean Community, and the Central American Integration System—the lack of unity and structural challenges continue to undermine its true potential. According to the JP Morgan study, the promise of greater regional cooperation is diluted by:
- Political tensions
- Fragmented regulatory structures
- Economic protectionism
Mercosur, for example, was created with the aim of strengthening economic collaboration in South America, but today it faces an internal crisis due to disagreements between its main members, such as Brazil and Argentina. Although it initially managed to increase intra-bloc trade tenfold, constant conflicts over tariffs have limited its development.
The Pacific Alliance, comprising Mexico, Colombia, Peru, Chile, and Costa Rica (in the process of joining), has made significant progress, such as reducing tariffs and partially integrating its stock markets. However, the lack of financial harmonization and restrictions on labor mobility prevent a more solid economic union.
Latin America loses ground in intraregional trade
One of the most revealing figures cited by JP Morgan is that intraregional trade accounts for only 15% of Latin America’s total exports, well below the 50% observed in East Asia and the Pacific. The decline in the share of services and the increase in exports to Asia and the United States show a growing external dependence.
Central America is the most promising exception, with intraregional exports accounting for 30% of the total, thanks to greater trade cohesion. However, heavy dependence on the US market—the main destination for Mexican and Central American exports—increases the vulnerability of these economies to any changes in US policy or demand.
What factors are affecting the projection for 2025?
JP Morgan highlights several elements that explain its projection of 1.9% regional growth in 2025:
- Low regional integration, which prevents economies of scale from being exploited and reduces global competitiveness.
- Protectionism and non-tariff barriers, such as health regulations or administrative barriers, which increase transaction costs.
- High dependence on raw materials, which makes economies more vulnerable to external shocks.
- Slowdown in China, which could lose up to 2.5 percentage points of growth due to new US tariffs, directly affecting South American mineral-exporting countries.
- Geopolitical tensions, particularly between the US and China, forcing Latin American countries to navigate an unstable balance in their economic relations.