Key Messages
Chapter 1. Persistent Inflation and Slowing Growth Amid Global Uncertainty
Most large countries continue to be on track to meet their inflation targets by 2026, but the last mile is proving difficult. Though inflationary expectations remain anchored, rising labor costs in the service sector have led to persistent core inflation across some major economies since the first quarter of 2025, and policy interest rates are, in general, falling more slowly.
Progress on poverty and inequality remains slow, largely reflecting continued sluggish job creation resulting from weak economic dynamism. In 2025, monetary poverty is expected to decrease marginally to 25.2 percent of LAC’s population (based on a newly revised upper-middle-income poverty line of $8.30 per day in 2021 purchasing power parity terms), while inequality is expected to remain high by global standards, with the Gini index reaching 49.1. In this complex scenario, empowering entrepreneurs and the private sector is essential. They can help fuel needed rapid growth and job creation as central actors in economic progress.
Chapter 2. LAC’s Entrepreneurship Challenge
The entrepreneur is a central but understudied figure in developing economies, mobilizing the private capital needed to create jobs and value added, as well as being the individual agent who identifies new technologies, recognizes their potential as a business in the local context, and then takes them to market. Entrepreneurship is fundamentally a process of experimentation marked by uncertainty and risk, placing a bet on what new product, process, or technology has the possibility to create value and jobs in the local context. Its success depends not only on individuals with the capabilities to identify and pursue new opportunities but also on the enabling environment that supports such risk-taking through enabling institutions and regulations.
The region ranks very high on attitudes toward entrepreneurship, on the status of the entrepreneur, and on the number of workers engaged in entrepreneurship. However, paradoxically, it appears to get little “kick” out of this experimentation process: new firms tend not to be more productive than incumbents, meaning that high firm turnover (entry and exit) does not automatically translate into the productivity gains that lead to better jobs.
Chapter 2 argues that this puzzle results in part from a deficiency in the quality of entrepreneurs. LAC’s apparently high entrepreneurship rates conflate two very distinct types of entrepreneurs—owners of “mom and pop” operations versus transformational entrepreneurship that adds value to the economy and creates higher-quality jobs. These two types of entrepreneurship need to be treated separately conceptually, and some important weaknesses in the latter type need to be understood and addressed. However, deficiencies in the entrepreneurial ecosystem also matter—particularly gaps related to the availability of credit and worker skills, which discourage the entry and growth of transformational firms.
