Latin America’s economic prospects weakened during the first quarter of 2025 because of slowing growth and increased uncertainty. Data from the Getulio Vargas Foundation (FGV) shows the Latin American Economic Climate Indicator (ICE) experienced a significant drop as almost all components indicated deteriorating business conditions. Despite experiencing regional instability, Paraguay remains ahead of its peers because its business environment demonstrates strong resilience and competitiveness within the challenging economic landscape.
FGV’s Economic Climate Indicator Shows Regional Weakness
FGV publishes the Latin American Economic Climate Indicator (ECI) quarterly to provide a respected standard for assessing both present and future business conditions in the region. The ECI comprises two sub-indices: The Current Situation Index (CSI) and the Expectations Index (EI) make up the ECI. The Current Situation Index and the Expectations Index provide data on today’s economic conditions and six-month future expectations, respectively.
The Latin America CSI decreased to 70.2 points in Q1 2025, which represented a decline of 7.7 points from the prior quarter and a decrease of 28 points from the same time last year. According to the report, multiple Latin American economies experienced a downturn because of declining current sentiment and negative future outlooks. The current economic downturn follows a trend that started in early 2024 and demonstrates persistent doubts among business executives and experts throughout the region.
The business environment in Paraguay experienced significant effects from regional economic trends.
Paraguay experienced the same regional pattern as other countries in Latin America. The country witnessed an 18.5-point ECI decline, which mainly resulted from a 25.1-point reduction in its Current Situation Index (CSI) as well as an 11.1-point decrease in its Expectations Index (EI). Despite businesses in Paraguay facing current operational difficulties, the nation has retained its top position in regional business climate rankings, which shows better performance than larger countries, including Argentina and Peru.
Paraguay and the business climate stand out especially due to the country’s small market size and restricted access to seaports. The country’s ability to maintain economic stability showcases its healthy macroeconomic foundations along with stable regulatory practices, which, together with investment attraction activities, support private sector development. International analysts have consistently recognized Paraguay’s business climate because of its prudent fiscal policies and openness to foreign investment.
Regional Comparison: How Paraguay Stands Out
The Argentine business climate continues to worsen because of persistent high inflation combined with currency fluctuations and uncertain government policies. Political instability together with a deceleration in export growth has caused investor sentiment to shift in Peru.
Even though Paraguay’s ECI components have decreased, Paraguay and the business climate continue to demonstrate strength through underlying fundamentals that provide a desirable business environment.
Stable Inflation: The inflation rate in Paraguay demonstrates stable control when contrasted with the rates found in neighboring countries.
Investment Incentives: Foreign investors remain drawn to the Maquila regime and Law 60/90, because of their tax and customs benefits.
Energy and Agriculture: Paraguay offers some of the world’s cheapest and largest clean energy supplies together with a successful agricultural industry sector.
Paraguay and the business climate remain attractive for regional and international investors during uncertain periods, because of these sustaining factors.
Interpreting the Drop in Expectations
The Expectations Index (EI) for Latin America experienced a small increase during Q1 2025 when it reached 77.8 points. The minimal improvement fails to alleviate worries about Latin America’s economic prospects in the near future. Expectations scores below 80 have typically indicated pessimistic sentiments, which is exactly what current levels demonstrate since they continue to trail behind pre-pandemic standards.
The 11.1-point decline in Paraguay’s expectations indicates rising concerns about external shocks such as restricted global financial conditions, decreased trade partner demand, and climate risks affecting agricultural production. Despite this decline, Paraguay maintains a stronger outlook compared to neighboring nations and shows cautious optimism for the latter half of the year.
Latin America’s Slowing GDP Growth
Expectations of reduced GDP growth in Latin America for 2025 intensify existing economic sentiment problems. FGV revised its regional GDP growth forecast down to 2.0% from the previous year’s estimate of 2.4%. The moderation stems from multiple interconnected factors, which include:
- Geopolitical tensions and delayed economic recoveries in Europe and China contribute to slower global trade progress.
- The elevated interest rates in developed nations have triggered capital flight and currency strain in Latin American markets.
Some nations continue to face ongoing structural issues including informality in the economy together with insufficient investment in their infrastructure and ineffective governance structures.
The business environment in Paraguay shows resilience despite the challenging environment. The government has worked on infrastructure development while keeping political stability and shifting economic focus away from agriculture.
What’s Driving the Resilience of Paraguay?
Multiple factors contribute to Paraguay’s sustained leadership in regional business sentiment. Several underlying factors help explain this resilience:
Sound Fiscal Management
Through disciplined budget practices and low public debt levels, Paraguay’s government sustains its financial stability. These policies act as a defense against external disruptions while helping preserve macroeconomic equilibrium.
Strategic Trade and Logistics
The landlocked country of Paraguay maintains efficient trade connections through regional routes that connect it to Brazil and Argentina using the Paraguay-Paraná waterway. Through its membership in Mercosur, Paraguay gains preferential treatment for entry into important export markets.
Proactive Investment Policy
Tax incentives, together with transparent property rights and dependable regulatory frameworks, create favorable conditions for foreign investors. Paraguay and the business climate stand out in Latin America as the government takes proactive measures to back agro-industry, manufacturing, and renewable energy sectors, thereby strengthening its business environment.
Youthful, Competitive Workforce
The demographic structure of Paraguay, which includes a young population and competitive wage levels, provides long-term workforce development advantages for labor-intensive industries.
Conclusion: Paraguay Remains a Beacon Amid Regional Volatility
The recent downturn in ECI numbers indicates that Paraguay is undergoing economic adjustment, yet these statistics require contextual analysis. Investors find Paraguay and the business climate most appealing despite regional instability, creating widespread uncertainty.
The initial three months of 2025 present contrasting results. Paraguay’s structural strengths and investor-friendly economic policies position it for future recovery despite current diminished confidence. For enterprises and investors targeting a stable position in Latin America, Paraguay and the business climate present a powerful mix of opportunity and resilience in the region.
Paraguay demonstrates that small economies can emerge as key players in regional development when they combine strong fundamentals with a strategic vision—even during times when other countries face economic challenges.