John Gallagher looks at the economic scene in the major Latin American economies and how it has affected the travel retail business.
The international geopolitical scenario has created multiple uncertainties for the worldwide economy and the duty free business.
The unpredictable and ever-changing state of events in the Iran – USA conflict and the closure of the Strait of Hormuz have disrupted the world oil market. As international oil prices rise, the cost of gas and aviation fuel has increased, and most developed economies are experiencing some level of inflation. International passenger traffic has suffered in many countries around the world, especially those with direct flights to the Middle East.
In general terms, Latin America has only suffered indirectly, as direct flights and trade exposure with the Middle East are comparatively low. However, higher fuel costs and higher transport costs have added to consumer inflation, which has contributed to slower economic growth throughout the continent.
Mixed outlook for Argentina
Since taking office in December 2023, President Javier Milei’s government has made significant progress in stabilizing Argentina’s economy after years of high inflation and fiscal imbalance. However, recent official data show that many sectors remain stagnant.
According to the government statistics office, Indec, Argentina’s economy grew in the first half of 2026, but the recovery was more modest than the government’s initial targets and varied widely across sectors.
Real GDP grew by 1.6% year over year, but growth was concentrated in primary sectors. Agriculture, mining, oil and gas exports drove growth. Consumer-facing sectors, industry, and commerce stagnated or contracted slightly. Supermarket sales remain below government and corporate targets, prompting some chains to close stores nationwide.
Domestic demand remains weak, with all retail segments either stagnant or contracting. Many retailers report that sales increase only when they offer aggressive promotions.
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Inflation and demand
Inflation has fallen sharply from the extreme levels of previous years but remains high by regional and international standards. While neighboring countries report low single-digit annual inflation, Argentina continues to miss its yearly targets and faces substantial monthly price increases.
In August, 12-month inflation rose to 33.8%, up slightly from 33.5% posted in July. The government has struggled to bring monthly inflation below 2%, a pace that would put the annual rate near its initial 25% forecast. The IMF and a host of independent analysts now expect full-year inflation will be closer to 30%.
More positively, Argentina maintained primary fiscal surpluses in the first half of the year, in line with its 2025 performance—an unexpected achievement after years of deficits. However, this fiscal discipline has also curtailed government investment and infrastructure projects.
Now in the third quarter, observers say that full-year GDP growth will be around 2.5%, well below the government’s earlier forecast.
With the next presidential election scheduled for October 2027, Milei says he will maintain his fiscal balance program and is confident that voters will give him a second term to complete his economic reforms.
The opposition remains divided and has yet to name a presidential candidate. Meanwhile, consumer groups and some private businesses are calling for measures to boost consumption and speed up the economic recovery.
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Elections in Brazil
With presidential elections looming in early October, Brazil’s economy rebounded in the first quarter of 2026, with household consumption and stronger investment helping GDP recover following a weak 2025 second half.
Ahead of his October reelection bid, President Luiz Inácio Lula da Silva has rolled out additional measures to boost consumption, including subsidized vehicle loans and higher social benefits and pensions.
Higher real disposable income, an increase in the minimum wage, and broader income tax exemptions for middle-income earners boosted household spending. Indeed, household consumption and private investment were the key drivers of growth in the first quarter.
On the supply side, agriculture posted solid growth in the first quarter of the year, with output rising 2.0% on a strong soybean harvest. Industry expanded 1.0%, led by the extractive sector, while services rose 0.5%.
Lower private consumption and stricter monetary policy slowed growth in the second quarter, but the figures were still higher than in Q2 of 2025.
The government still expects Brazil’s economy to grow 2.3% in 2026, matching last year’s pace, although private analysts forecast growth closer to 2.0%.
Annual inflation remains around 4.4%. The consensus forecast is 5.0% for 2026, easing to just under 4.3% in 2027.
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Growth in air traffic
International air traffic has remained positive in Latin America, outperforming other regions so far in 2026.
Through the first half of 2026, airlines carried 242.8 million passengers in Latin America and the Caribbean, up 3.4% year-over-year. International traffic has been especially strong; Latin American airlines saw international demand surge 12% in early 2026, with load factors around 85% — the highest of any region. The increase of about eight million more passengers than in the same period of 2025 was excellent news for retail concession holders at airports.
June was a weak month, as the region recorded its first year-over-year monthly decline since 2021. Higher fuel costs contributed, but many observers also point to softer North American demand and FIFA World Cup-related disruptions to travel patterns across the Americas.
IATA continues to project 5% passenger demand (RPK) growth for the year, among the fastest worldwide, supported by resilient regional economies and low-cost carrier expansion.
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Argentina shows growth in international air travel but domestic declines
Total air traffic in Argentina reached 28.8 million passengers in the first seven months of 2026 – a record figure, up 0.3% on the same period last year. International traffic grew about 12% in this period to 10.35 million passengers. The June dip seems to have been a pause rather than the start of a negative trend — so the international outlook looks positive for the rest of the year, in contrast to a domestic segment that fell in the first seven months of the year.
Weak consumer demand pushed domestic traffic down 5% in the first seven months to 18.53 million passengers, and the contracting economy offers little promise of improvement by year-end.
After cancellations rose in the second quarter, more than 75% of Flybondi’s scheduled flights were canceled in July and August. Because Aerolíneas Argentinas and JetSMART could not absorb the displaced passengers, Flybondi’s crisis has become a major contributor to the decline in domestic traffic. Industry observers now expect the airline to announce bankruptcy soon.
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International and domestic growth in Brazil
Brazil’s airport network recorded positive passenger growth in the first seven months of 2026. Domestic traffic reached 59 million passengers from January through July, up 4.04% from the same period in 2025.
Meanwhile, international traffic is growing at twice the rate of domestic traffic, and the government is forecasting 17.7 million travelers, up by 8.2% on 2025.
Air traffic at Chilean airports declined slightly. From January through July 2026, total passenger traffic fell 2.1% year over year to 16.46 million. Domestic traffic declined 3.6%, while international traffic edged down 0.3% to 7.25 million passengers.
Uruguay and Paraguay, however, posted solid results.
Uruguay’s airports handled 1.42 million passengers in the first seven months, up 2.8% from the same period in 2025.
Paraguay’s airports handled 839k passengers between January and July 2026, up 12% versus the same period in 2025; this continues a sturdy growth trajectory after a record 2025, when Paraguay’s airports moved 1.28m passengers for the full year. Paraguay’s civil aviation authority, DINAC, is targeting 1.4 million passengers by the end of 2026.
