A landmark report released on November 7, 2025, by a consortium of leading international bodies is urging Latin America and the Caribbean (LAC) to fundamentally overhaul its economic strategies to unlock its vast growth potential. The “Latin American Economic Outlook 2025: Promoting and Financing Production Transformation,” a collaboration between the Economic Commission for Latin America and the Caribbean (ECLAC), the Organisation for Economic Co-operation and Development (OECD), the European Commission, and CAF–Development Bank of Latin America and the Caribbean, asserts that a significant shift towards modernization, innovation, and strategic investment is critical for achieving sustainable, digital, and inclusive growth.
The Region’s Persistent Challenges
The report paints a stark picture of the region’s current economic predicament, characterized by long-standing productivity challenges that have created a “development crisis.” For decades, LAC has grappled with a low capacity for growth, high levels of inequality, limited social mobility, and weak institutional frameworks. As of 2023, over 55% of workers in the region remain in informal employment, a situation that not only reduces fiscal space and weakens social protection but also stifles labor productivity. Furthermore, investment in research and development (R&D) remains critically low, with the region investing around 0.56% of its GDP, a fraction of the 3% invested by OECD countries. This deficit in innovation capacity, coupled with inadequate skills development, severely restricts the region’s ability to transition towards higher value-added economic activities.
Modernizing Productive Development Policies (PDPs)
At the heart of the report’s prescription is the urgent need to modernize and scale up Productive Development Policies (PDPs). These policies, which integrate public and private sector efforts to transform economic sectors and drive innovation, have historically been hampered in the LAC region by poor coordination and insufficient budgets. The “Latin American Economic Outlook 2025” emphasizes that effective PDPs must be collaborative, engaging governments, the private sector, academia, and civil society. They need to be strategic, prioritizing key sectors, and localized, with strong action at the subnational level. Currently, LAC governments allocate only an average of 0.5% of GDP to PDPs, a stark contrast to the 3% in OECD countries, while tax exemptions often consume significant resources that could otherwise fund development.
Fueling Transformation Through Investment and Innovation
The report highlights a promising trend: Foreign Direct Investment (FDI) is increasingly flowing into renewable energy, digital infrastructure, and high-tech industries. Although overall FDI flows to the region saw a decrease in 2024, with specific figures varying across different analyses, investment in green hydrogen, solar energy, and lithium mining, among other advanced sectors, continues to show potential. The region’s electricity generation matrix is already among the cleanest globally, presenting an opportunity to become a producer of goods for the global energy transition. To capitalize on this, the report calls for greater mobilization of both public and private capital, focusing on sectors that drive economic growth and can facilitate technology transfer and the development of new industries.
Innovative Financing for Sustainable Growth
To bridge the significant financing gap in key production sectors, the report advocates for a revitalized approach to financing development. A notable positive development is the surge in green, social, and sustainability bonds, which by 2024 constituted 27.2% of the LAC region’s total bond issuance in international markets, up from just 9% in 2020. This market reached approximately $164.4 billion in 2024, indicating a growing appetite for sustainable investments. Strengthening national development finance institutions (DFIs) and fostering inclusive financial markets are also identified as crucial for scaling up investment, particularly for small and medium-sized enterprises (SMEs).
Embracing Technology and Human Capital
Accelerating the region’s transformation hinges on embracing technology and investing in human capital. With only 2.1% of jobs in medium- to high-tech sectors, far below the OECD average, the region must prioritize skills development and technology adoption. International partnerships are deemed essential for funding and developing new skills and fostering the adoption of advanced technologies that can bolster productivity and competitiveness. The convergence of digital transformation, R&D, and strategic PDPs is seen as the pathway to creating resilient, knowledge-intensive production systems.
A Unified Call for Action
The “Latin American Economic Outlook 2025” report serves as a critical piece of news, underscoring that the region faces a pivotal moment. By implementing ambitious reforms, fostering collaboration between public and private sectors, and leveraging innovative financing and technology, Latin America and the Caribbean can move beyond its cycle of low growth and build a more dynamic, diversified, and prosperous future. The report’s findings, presented at international forums, including the CELAC-EU Summit Business Forum, signal a clear call to action for policymakers, investors, and stakeholders across the Caribbean and the wider region.