Rightward electoral shift improves South America investment outlook
A wave of right-wing election victories is expected to unlock foreign investment in South American mining and energy, though Brazil's upcoming vote poses a significant risk to the region's fiscal stability.
A rightward political realignment across South America is set to improve the region's appeal to foreign capital, according to BMI. The Fitch Solutions research unit forecasts that business-friendly governments in three of the six major markets will catalyse investment and domestic spending. BMI's GDP-weighted political risk index for 2026 has already fallen to 49.7 from 51.6 at the end of 2025.
This improved political backdrop is emerging despite deteriorating global conditions. BMI noted that global growth has been revised down to 2.4% as Middle East tensions keep oil near $85 a barrel, while effective US tariff rates are expected to climb to 13% from 10.5% later this week.
Peru and Colombia are leading the pivot. Keiko Fujimori's narrow 0.2% victory is expected to unlock a $50bn mining permit backlog through deregulation, supporting GDP growth of 4.0% in 2027. In Colombia, president-elect Abelardo De la Espriella is anticipated to reverse state-centric policies by unfreezing oil and gas exploration, though a fractured Congress will limit the pace of fiscal consolidation.
Chile's trajectory is complicated by short-term economic weakness. President Jose Antonio Kast's fiscal tightening has triggered five months of contraction, pushing 2026 growth forecasts down to 1.6%. However, legislation to cut the corporate tax rate to 23% and introduce extended tax stability is advancing, while record copper shipments of $30 billion in the first half underscore the sector's underlying strength.
Brazil remains the primary threat to the region's constructive outlook. BMI described the October election as its "lowest-confidence electoral call of the cycle," with a Banco Master scandal leaving incumbent Luiz Inácio Lula da Silva with a narrow polling lead over Flávio Bolsonaro. A Lula victory would likely trigger a sharp widening of credit-default-swap spreads and a sell-off in the real, forcing harsher fiscal austerity than currently priced in.
Outside the rightward trend, Mexico and Argentina are also drawing positive assessments. Mexico's growth forecast was revised up to 1.4% for 2026 as President Claudia Sheinbaum's infrastructure plan attracts private capital, while Argentina is projected to grow 2.5% on the back of Javier Milei's fiscal discipline and rising energy output.
BMI warned that three factors could still derail its base case. A severe El Niño could reduce regional growth by 0.2 percentage points, a cooling in artificial-intelligence investment could hit copper prices, and broader global financial tightening would disproportionately impact fragile economies like Ecuador.
