A relatively strong start to the year gave way to a more uncertain outlook for the Western Hemisphere as war in the Middle East introduced new risks for growth, inflation, and vulnerable economies. At the IMF’s 2026 Spring Meetings, Western Hemisphere Department Director, Nigel Chalk, discussed how the region is navigating those pressures.
“The Western Hemisphere region had started 2026 on a solid footing. For most countries, growth was close to potential, output gaps were largely closed, and inflation was at target. The region had been able to adapt last year to the shift in US tariff policy, and indeed we've seen in the region export growth has actually been accelerating. Unfortunately, the region still has relatively weak productivity growth, which means the level of the growth in the economy was not what we would like to see. But on the plus side, we were seeing countries making progress in tackling some of the distortions and bottlenecks that their economies face. However, not surprisingly, the war in the Middle East has changed this narrative. We anticipate that the effects of this changing global environment will be felt very differently across this region,” predicted Chalk.
How those effects unfold will depend in large part on the duration of the conflict and the persistence of related disruptions. While some oil-producing economies may see near-term gains from higher energy prices, those benefits do not insulate vulnerable households from rising living costs, particularly if food prices come under added pressure. Those differences in exposure become even more pronounced across the region’s more vulnerable economies.
“We are very concerned the tourism-dependent Caribbean economies are likely to be the hardest hit. Their debt is high, their fiscal space is small, and they are quite large net energy importers, even despite investments that have been made in these countries in shifting towards renewables. We also don't know what the potential impact of this war and the shifts in energy prices may have on flights and on tourism. And so that's another thing that we're keeping an eye on. Central America is also exposed to this global shock. They import energy and they face limits - and for some of the countries quite binding limits on the fiscal space and the policy space that they have to undertake measures to cushion the impact of this shock. While the economic activity impact across the region will vary quite a lot, for all of the countries, inflation will be higher. As always, when we see a burst of inflation, the greatest hardship of that inflation will be borne by the families that can least afford it,” commented Chalk.
That inflation challenge is now bringing policy credibility back to the forefront. After the gains made in restoring price stability in recent years, central banks are again being called upon to respond, but from a stronger starting point, supported by well-anchored inflation expectations and greater policy credibility. That, in turn, shapes how monetary and fiscal authorities can respond to this next phase of pressure.
“We're confident in the central banks in the region will step up to this new challenge. Our message to the fiscal authorities of the region is to resist the political pressure to either contain or delay the inevitable food and fuel price increases that are coming. This is especially true in South America, where many countries in the past few years have taken courageous decisions to replace untargeted fuel and food subsidies with well-designed safety nets. They should use those safety nets now. It's imperative also that these gains in allowing market pricing to feed through, particularly into fuel and energy, are preserved. We do think that fiscal support can be provided, but it should be used judiciously and it should be focused on the vulnerable families, farmers and businesses that are most affected by this shock. And finally, I want to assure you that at the IMF, we are here to help all of our members that may be providing analytical inputs to their decision-making and their policy advice. We're sharing insights from what other countries are doing to contend with the economic implications of the war,” concluded Chalk.
To watch the full press briefing, click here: Western Hemisphere Department
To read the full report, click here: Western Hemisphere Economic Outlook
